UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒ |
Accelerated filer |
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☐ |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock outstanding as of July 28, 2022 was
WW INTERNATIONAL, INC.
TABLE OF CONTENTS
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Page No. |
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Item 1. |
2 |
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Unaudited Consolidated Balance Sheets at July 2, 2022 and January 1, 2022 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
58 |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
59 |
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Item 6. |
60 |
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61 |
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PART I—FINANCIAL INFORMATION
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ITEM 1. |
FINANCIAL STATEMENTS |
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS AT
(IN THOUSANDS)
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July 2, |
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January 1, |
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2022 |
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2022 |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables (net of allowances: July 2, 2022 - $ January 1, 2022 - $ |
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Inventories |
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Prepaid income taxes |
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Prepaid expenses and other current assets |
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TOTAL CURRENT ASSETS |
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Property and equipment, net |
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Operating lease assets |
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Franchise rights acquired |
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Goodwill |
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Other intangible assets, net |
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Deferred income taxes |
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Other noncurrent assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND TOTAL DEFICIT |
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CURRENT LIABILITIES |
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Portion of long-term debt due within one year |
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$ |
— |
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$ |
— |
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Portion of operating lease liabilities due within one year |
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Accounts payable |
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Salaries and wages payable |
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Accrued marketing and advertising |
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Accrued interest |
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Other accrued liabilities |
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Derivative payable |
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Income taxes payable |
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Deferred revenue |
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TOTAL CURRENT LIABILITIES |
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Long-term debt, net |
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Long-term operating lease liabilities |
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Deferred income taxes |
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Other |
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TOTAL LIABILITIES |
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TOTAL DEFICIT |
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Common stock, $ shares issued at July 2, 2022 and January 1, 2022 |
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Treasury stock, at cost, shares at January 1, 2022 |
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( |
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Retained earnings |
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Accumulated other comprehensive loss |
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TOTAL DEFICIT |
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TOTAL LIABILITIES AND TOTAL DEFICIT |
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$ |
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$ |
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The accompanying notes are an integral part of the consolidated financial statements.
2
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF NET INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
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Three Months Ended |
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Six Months Ended |
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July 2, |
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July 3, |
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July 2, |
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July 3, |
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2022 |
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2021 |
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2022 |
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2021 |
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Subscription revenues, net |
$ |
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$ |
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$ |
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$ |
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Product sales and other, net |
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Revenues, net |
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Cost of subscription revenues |
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Cost of product sales and other |
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Cost of revenues |
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Gross profit |
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Marketing expenses |
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Selling, general and administrative expenses |
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Franchise rights acquired and goodwill impairments |
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— |
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— |
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Operating income |
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Interest expense |
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Other expense, net |
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Early extinguishment of debt |
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— |
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— |
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(Loss) income before income taxes |
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( |
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( |
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( |
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(Benefit from) provision for income taxes |
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( |
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( |
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( |
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Net (loss) income |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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(Net loss) earnings per share |
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Basic |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Diluted |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Weighted average common shares outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of the consolidated financial statements.
3
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
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Three Months Ended |
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Six Months Ended |
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July 2, |
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July 3, |
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July 2, |
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July 3, |
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2022 |
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2021 |
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2022 |
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2021 |
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Net (loss) income |
$ |
( |
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$ |
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$ |
( |
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$ |
( |
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Other comprehensive (loss) gain: |
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Foreign currency translation (loss) gain |
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( |
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( |
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Income tax benefit (expense) on foreign currency translation (loss) gain |
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( |
) |
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( |
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Foreign currency translation (loss) gain, net of taxes |
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( |
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( |
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Gain on derivatives |
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Income tax expense on gain on derivatives |
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( |
) |
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( |
) |
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( |
) |
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( |
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Gain on derivatives, net of taxes |
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Total other comprehensive (loss) gain |
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( |
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Comprehensive (loss) income |
$ |
( |
) |
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$ |
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$ |
( |
) |
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$ |
( |
) |
The accompanying notes are an integral part of the consolidated financial statements.
4
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED Consolidated Statements of Changes in Total Deficit
(IN THOUSANDS)
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Three Months Ended July 2, 2022 |
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Accumulated |
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Other |
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Common Stock |
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Treasury Stock |
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Comprehensive |
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Retained |
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Shares |
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Amount |
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Shares |
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Amount |
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Loss |
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Earnings |
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Total |
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Balance at April 2, 2022 |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
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Comprehensive loss |
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( |
) |
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( |
) |
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( |
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Issuance of treasury stock under stock plans |
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( |
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( |
) |
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( |
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Compensation expense on share-based awards |
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Balance at July 2, 2022 |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
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Six Months Ended July 2, 2022 |
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Accumulated |
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Other |
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Common Stock |
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Treasury Stock |
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Comprehensive |
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Retained |
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Shares |
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Amount |
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Shares |
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Amount |
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Loss |
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Earnings |
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Total |
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Balance at January 1, 2022 |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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Comprehensive (loss) income |
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( |
) |
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( |
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Issuance of treasury stock under stock plans |
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( |
) |
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( |
) |
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( |
) |
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Compensation expense on share-based awards |
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Balance at July 2, 2022 |
|
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|
$ |
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|
$ |
( |
) |
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$ |
( |
) |
|
$ |
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$ |
( |
) |
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Three Months Ended July 3, 2021 |
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Accumulated |
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Other |
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Common Stock |
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Treasury Stock |
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Comprehensive |
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Retained |
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|
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Shares |
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Amount |
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Shares |
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Amount |
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Loss |
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Earnings |
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Total |
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|||||||
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Balance at April 3, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Comprehensive income |
|
|
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|
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|
|
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Issuance of treasury stock under stock plans |
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|
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|
( |
) |
|
|
|
|
|
|
|
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( |
) |
|
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( |
) |
|
Compensation expense on share-based awards |
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|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 3, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Treasury Stock |
|
|
Comprehensive |
|
|
Retained |
|
|
|
|
|
||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Loss |
|
|
Earnings |
|
|
Total |
|
|||||||
|
Balance at January 2, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Comprehensive (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Issuance of treasury stock under stock plans |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Compensation expense on share-based awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 3, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
The accompanying notes are an integral part of the consolidated financial statements.
5
WW INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
|
|
|
Six Months Ended |
|
|||||
|
|
|
July 2, |
|
|
July 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net loss to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs and debt discount |
|
|
|
|
|
|
|
|
|
Impairment of franchise rights acquired and goodwill |
|
|
|
|
|
|
— |
|
|
Impairment of intangible and long-lived assets |
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
Deferred tax benefit |
|
|
( |
) |
|
|
( |
) |
|
Allowance for doubtful accounts |
|
|
|
|
|
|
( |
) |
|
Reserve for inventory obsolescence |
|
|
|
|
|
|
|
|
|
Foreign currency exchange rate loss (gain) |
|
|
|
|
|
|
( |
) |
|
Early extinguishment of debt |
|
|
— |
|
|
|
|
|
|
Changes in cash due to: |
|
|
|
|
|
|
|
|
|
Receivables |
|
|
( |
) |
|
|
|
|
|
Inventories |
|
|
( |
) |
|
|
|
|
|
Prepaid expenses |
|
|
|
|
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
( |
) |
|
|
( |
) |
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
Other long term assets and liabilities, net |
|
|
( |
) |
|
|
( |
) |
|
Income taxes |
|
|
( |
) |
|
|
( |
) |
|
Cash provided by operating activities |
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
|
Capitalized software expenditures |
|
|
( |
) |
|
|
( |
) |
|
Cash paid for acquisitions |
|
|
( |
) |
|
|
( |
) |
|
Other items, net |
|
|
( |
) |
|
|
( |
) |
|
Cash used for investing activities |
|
|
( |
) |
|
|
( |
) |
|
Financing activities: |
|
|
|
|
|
|
|
|
|
Net (payments) borrowings on revolver |
|
|
|
|
|
|
|
|
|
Proceeds from long term debt |
|
|
— |
|
|
|
|
|
|
Financing costs and debt discount |
|
|
— |
|
|
|
( |
) |
|
Payments on long-term debt |
|
|
— |
|
|
|
( |
) |
|
Taxes paid related to net share settlement of equity awards |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from stock options exercised |
|
|
— |
|
|
|
|
|
|
Other items, net |
|
|
( |
) |
|
|
( |
) |
|
Cash used for financing activities |
|
|
( |
) |
|
|
( |
) |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
Net decrease in cash and cash equivalents |
|
|
( |
) |
|
|
( |
) |
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of the consolidated financial statements.
6
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
1. |
Basis of Presentation |
The accompanying consolidated financial statements include the accounts of WW International, Inc. and all of its subsidiaries. The terms “Company” and “WW” as used throughout these notes are used to indicate WW International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s “Digital” business refers to providing subscriptions to the Company’s digital product offerings, including Personal Coaching + Digital and Digital 360 as applicable. The Company’s “Workshops + Digital” business refers to providing unlimited access to the Company’s workshops combined with the Company’s digital subscription product offerings to commitment plan subscribers, including former Digital 360 members as applicable. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including the Company’s “pay-as-you-go” members. In the second quarter of fiscal 2022, the Company ceased offering its Digital 360 product. More than a majority of associated members were transitioned from the Company’s Digital business to its Workshops + Digital business during the second quarter, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. The cessation of this product offering and these transitions of former Digital 360 members at the then-current pricing for such product impacted the number of End of Period Subscribers in each business as well as the associated Paid Weeks and Revenues for each business.
The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and include amounts that are based on management’s best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. For example, the Company considered the impact of COVID-19 and its variants on the assumptions and estimates used when preparing its Quarterly Report on Form 10-Q quarterly financial statements. These assumptions and estimates may change as new events occur and additional information is obtained, and such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity. The consolidated financial statements include all of the Company’s majority-owned subsidiaries. All entities acquired, and any entity of which a majority interest was acquired, are included in the consolidated financial statements from the date of acquisition. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s operating results for any interim period are not necessarily indicative of future or annual results. The consolidated financial statements are unaudited and, accordingly, they do not include all of the information necessary for a comprehensive presentation of results of operations, financial position and cash flow activity required by GAAP for complete financial statements but, in the opinion of management, reflect all adjustments including those of a normal recurring nature necessary for a fair statement of the interim results presented.
In the second quarter of fiscal 2022, the Company identified and recorded out-of-period adjustments related to income tax errors resulting primarily from the reversal of (i) a basis difference related to goodwill and other intangibles and (ii) a U.S. federal income tax receivable that should have been adjusted in prior fiscal years. The impact of correcting these errors, which were immaterial to prior period financial statements and corrected in the second quarter of fiscal 2022, resulted in an income tax benefit of $
These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal 2021 filed on March 1, 2022, which includes additional information about the Company, its results of operations, its financial position and its cash flows.
|
2. |
Accounting Standards Adopted in Current Year |
In October 2021, the Financial Accounting Standards Board issued updated guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (i) recognition of an acquired contract liability and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this update require an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The new guidance should be applied prospectively to business combinations occurring on or after its effective date. On
7
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
3.Leases
At July 2, 2022 and January 1, 2022, the Company’s lease assets and lease liabilities, primarily for its studios and corporate offices, were as follows:
|
|
|
July 2, 2022 |
|
|
January 1, 2022 |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
Operating lease assets |
|
$ |
|
|
|
$ |
|
|
|
Finance lease assets |
|
|
|
|
|
|
|
|
|
Total leased assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
Operating |
|
$ |
|
|
|
$ |
|
|
|
Finance |
|
|
|
|
|
|
|
|
|
Noncurrent |
|
|
|
|
|
|
|
|
|
Operating |
|
$ |
|
|
|
$ |
|
|
|
Finance |
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
July 3, |
|
||||
|
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Operating lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed lease cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Lease termination cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable lease cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating lease cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance lease cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Total lease cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
At July 2, 2022 and January 1, 2022, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:
|
|
|
July 2, 2022 |
|
|
January 1, 2022 |
|
||
|
Weighted Average Remaining Lease Term (years) |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Discount Rate |
|
|
|
|
|
|
|
|
|
Operating leases |
|
|
|
|
|
|
|
|
|
Finance leases |
|
|
|
|
|
|
|
|
The Company’s leases have remaining lease terms of 0 to
8
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
At July 2, 2022, the maturity of the Company’s lease liabilities in each of the next five fiscal years and thereafter were as follows:
|
|
Operating Leases |
|
|
Finance Leases |
|
|
Total |
|
|||
|
Remainder of fiscal 2022 |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Fiscal 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2025 |
|
|
|
|
|
— |
|
|
|
|
|
|
Fiscal 2026 |
|
|
|
|
|
— |
|
|
|
|
|
|
Fiscal 2027 |
|
|
|
|
|
— |
|
|
|
|
|
|
Thereafter |
|
|
|
|
|
— |
|
|
|
|
|
|
Total lease payments |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Less imputed interest |
|
|
|
|
|
|
|
|
|
|
|
|
Present value of lease liabilities |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Supplemental cash flow information related to leases for the six months ended July 2, 2022 and July 3, 2021 were as follows:
|
|
|
Six Months Ended |
|
|||||
|
|
|
July 2, |
|
|
July 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
$ |
|
|
|
$ |
|
|
|
Operating cash flows from finance leases |
|
$ |
|
|
|
$ |
|
|
|
Financing cash flows from finance leases |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leased assets obtained (modified) in exchange for new (modified) operating lease liabilities |
|
$ |
|
|
|
$ |
( |
) |
|
Leased assets obtained in exchange for new finance lease liabilities |
|
$ |
|
|
|
$ |
|
|
|
4. |
Revenue |
Revenues are recognized when control of the promised services or goods is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services or goods.
The following table presents the Company’s revenues disaggregated by revenue source:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
July 3, |
|
||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Digital Subscription Revenues |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Workshops + Digital Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Product sales and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
9
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The following tables present the Company’s revenues disaggregated by revenue source and segment:
|
|
Three Months Ended July 2, 2022 |
|
|||||||||||||||||
|
|
North |
|
|
Continental |
|
|
United |
|
|
|
|
|
|
|
|
|
|||
|
|
America |
|
|
Europe |
|
|
Kingdom |
|
|
Other |
|
|
Total |
|
|||||
|
Digital Subscription Revenues |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Workshops + Digital Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Product sales and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Three Months Ended July 3, 2021 |
|
|||||||||||||||||
|
|
North |
|
|
Continental |
|
|
United |
|
|
|
|
|
|
|
|
|
|||
|
|
America |
|
|
Europe |
|
|
Kingdom |
|
|
Other |
|
|
Total |
|
|||||
|
Digital Subscription Revenues |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Workshops + Digital Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Product sales and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Six Months Ended July 2, 2022 |
|
|||||||||||||||||
|
|
North |
|
|
Continental |
|
|
United |
|
|
|
|
|
|
|
|
|
|||
|
|
America |
|
|
Europe |
|
|
Kingdom |
|
|
Other |
|
|
Total |
|
|||||
|
Digital Subscription Revenues |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Workshops + Digital Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Product sales and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Six Months Ended July 3, 2021 |
|
|||||||||||||||||
|
|
North |
|
|
Continental |
|
|
United |
|
|
|
|
|
|
|
|
|
|||
|
|
America |
|
|
Europe |
|
|
Kingdom |
|
|
Other |
|
|
Total |
|
|||||
|
Digital Subscription Revenues |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Workshops + Digital Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Product sales and other, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Information about Contract Balances
For Subscription Revenues, the Company can collect payment in advance of providing services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable.
10
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
|
|
Deferred |
|
|
Deferred |
|
||
|
|
|
Revenue |
|
|
Revenue-Long Term |
|
||
|
Balance as of January 1, 2022 |
|
$ |
|
|
|
$ |
|
|
|
Net increase during the period |
|
|
|
|
|
|
|
|
|
Balance as of July 2, 2022 |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 2, 2021 |
|
$ |
|
|
|
$ |
|
|
|
Net increase (decrease) during the period |
|
|
|
|
|
|
( |
) |
|
Balance as of July 3, 2021 |
|
$ |
|
|
|
$ |
|
|
Revenue recognized from amounts included in current deferred revenue as of January 1, 2022 was $
|
5. |
Acquisitions |
Acquisitions of Franchisees
On February 18, 2022, the Company acquired the entire issued share capital of its Republic of Ireland franchisee, Denross Limited, and its Northern Ireland franchisee, Checkweight Limited, as follows:
|
|
(a) |
The Company acquired the entire issued share capital of Denross Limited for a purchase price of $ |
|
|
(b) |
The Company acquired the entire issued share capital of Checkweight Limited for a purchase price of $ |
On August 16, 2021, the Company acquired substantially all of the assets of its franchisee for certain territories in Maine, Weight Watchers of Maine, Inc., for a purchase price of $
On March 22, 2021, the Company acquired substantially all of the assets of its Michigan franchisee, The WW Group, Inc., and its Ontario, Canada franchisee, The WW Group Co., as follows:
|
|
(a) |
The Company acquired substantially all of the assets of The WW Group, Inc., which operated franchises in certain territories in Michigan, for an aggregate purchase price of $ |
|
|
(b) |
The Company acquired substantially all of the assets of The WW Group Co., which operated franchises in certain territories in Ontario, Canada, for an aggregate purchase price of $ |
These acquisitions have been accounted for under the purchase method of accounting and, accordingly, earnings of the acquired franchises have been included in the consolidated operating results of the Company since the date of acquisition.
11
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
6. |
Franchise Rights Acquired, Goodwill and Other Intangible Assets |
Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the six months ended July 2, 2022, the change in the carrying value of franchise rights acquired was due to the impairments of the Canada and New Zealand units of account as discussed below, the effect of exchange rate changes and the Northern Ireland franchisee acquisition as described in Note 5.
Goodwill primarily relates to the acquisition of the Company by The Kraft Heinz Company (successor to H.J. Heinz Company) in 1978, and the Company’s acquisitions of WW.com, LLC (formerly known as WW.com, Inc. and WeightWatchers.com, Inc.) in 2005 and the Company’s franchised territories. See Note 5 for additional information about acquisitions by the Company.
|
|
|
North |
|
|
Continental |
|
|
United |
|
|
|
|
|
|
|
|
|
|||
|
|
|
America |
|
|
Europe |
|
|
Kingdom |
|
|
Other |
|
|
Total |
|
|||||
|
Balance as of January 2, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Goodwill acquired during the period |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Effect of exchange rate changes |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance as of January 1, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Goodwill acquired during the period |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Goodwill impairment |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Effect of exchange rate changes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance as of July 2, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than
In performing the impairment analysis for indefinite-lived franchise rights acquired, the fair value for franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to the Company’s Workshops + Digital business and a relief from royalty methodology for franchise rights related to the Company’s Digital business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. The Company has determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of these franchise rights in the United States, Canada, United Kingdom, Australia and New Zealand as of the July 2, 2022 balance sheet date were $
In its hypothetical start-up approach analysis for fiscal 2022, the Company assumed that the year of maturity was reached after
Goodwill
In performing the impairment analysis for goodwill, the fair value for the Company’s reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. The Company has determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The net book values of goodwill in the United States, Canada and other countries as of the July 2, 2022 balance sheet date were $
12
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
For all of the Company’s reporting units tested as of May 8, 2022, the Company estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. The Company utilized operating income as the basis for measuring its potential growth because it believes it is the best indicator of the performance of its business. The Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.
Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test
The Company reviews indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, and goodwill for potential impairment on at least an annual basis or more often if events so require. The Company performed fair value impairment testing as of May 8, 2022 and May 9, 2021, each the first day of fiscal May, on its indefinite-lived intangible assets and goodwill.
In performing its annual impairment analysis as of May 8, 2022, the Company determined that (i) the carrying amounts of its Canada and New Zealand franchise rights acquired with indefinite lived units of account exceeded their respective fair values and, as a result, the Company recorded impairment charges for its Canada and New Zealand units of account of $
When determining fair value, the Company utilizes various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, the Company would be required to record a corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying amounts of the related assets on its balance sheet.
Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment analysis performed for its United States unit of account, which holds
Based on the results of the Company’s May 8, 2022 annual goodwill impairment analysis performed for all of its reporting units, all units, except for the Republic of Ireland, had an estimated fair value at least
Kurbo Goodwill Impairment
On August 10, 2018, the Company acquired substantially all of the assets of Kurbo Health, Inc., a family-based healthy lifestyle coaching program, for a net purchase price of $
13
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Finite-lived Intangible Assets
The carrying values of finite-lived intangible assets as of July 2, 2022 and January 1, 2022 were as follows:
|
|
|
July 2, 2022 |
|
|
January 1, 2022 |
|
||||||||||
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
||
|
|
|
Carrying |
|
|
Accumulated |
|
|
Carrying |
|
|
Accumulated |
|
||||
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
||||
|
Capitalized software costs |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Website development costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and other intangible assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Franchise rights acquired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finite-lived intangible assets |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $
Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:
|
Remainder of fiscal 2022 |
|
$ |
|
|
|
Fiscal 2023 |
|
$ |
|
|
|
Fiscal 2024 |
|
$ |
|
|
|
Fiscal 2025 |
|
$ |
|
|
|
Fiscal 2026 |
|
$ |
|
|
|
Fiscal 2027 |
|
$ |
|
|
|
Thereafter |
|
$ |
|
|
|
7. |
Long-Term Debt |
The components of the Company’s long-term debt were as follows:
|
|
|
July 2, 2022 |
|
|
January 1, 2022 |
|
||||||||||||||||||||||||||
|
|
|
Principal Balance |
|
|
Unamortized Deferred Financing Costs |
|
|
Unamortized Debt Discount |
|
|
Effective Rate (1) |
|
|
Principal Balance |
|
|
Unamortized Deferred Financing Costs |
|
|
Unamortized Debt Discount |
|
|
Effective Rate (1) |
|
||||||||
|
Revolving Credit Facility due April 13, 2026 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
% |
|
$ |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
% |
|
Term Loan Facility due April 13, 2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
Senior Secured Notes due April 15, 2029 |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
% |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
% |
|
Less: Current portion |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized deferred financing costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized debt discount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
14
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
On April 13, 2021, the Company (1) repaid in full approximately $
Credit Facilities
The Credit Facilities were issued under a credit agreement, dated April 13, 2021 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $
In December 2021, the Company made voluntary prepayments at par in an aggregate amount of $
As of July 2, 2022, the Company had $
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
|
|
• |
a pledge of |
|
|
• |
a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions. |
The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
|
|
• |
|
|
|
• |
|
|
|
• |
|
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. The Company may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities.
15
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a)
On a quarterly basis, the Company pays a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon the Company’s Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.
The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds
Senior Secured Notes
The Senior Secured Notes were issued pursuant to an Indenture, dated as of
16
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
The Senior Secured Notes accrue interest at a rate per annum equal to
The Senior Secured Notes are guaranteed on a senior secured basis by the Company’s subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At July 2, 2022, the Company had $
At July 2, 2022 and January 1, 2022, the Company’s debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. See Note 11 for information on the Company’s interest rate swaps. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, exclusive of the impact of the swaps then in effect, was approximately
17
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
8.Per Share Data
Basic (net loss) earnings per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted (net loss) earnings per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents.
The following table sets forth the computation of basic and diluted (net loss) earnings per share data:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
July 3, |
|
||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive common stock equivalents |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Weighted average diluted common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Net loss) earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
Diluted |
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted (net loss) earnings per share was
9.Taxes
Income Taxes
The effective tax rates for the three and six months ended July 2, 2022 were
The effective tax rates for the three and six months ended July 3, 2021 were
Non-Income Tax Matters
The Internal Revenue Service notified the Company of certain penalties assessed related to the annual disclosure and reporting requirements of the Affordable Care Act. The Company is in the process of appealing this determination and does not believe it has any liability with respect to this matter.
18
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
10.Legal
Due to the nature of the Company’s activities, it is, at times, subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions.
|
11. |
Derivative Instruments and Hedging |
As of July 2, 2022 and January 1, 2022, the Company had in effect interest rate swaps with an aggregate notional amount totaling $
On June 11, 2018, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2018 swap”) with an effective date of
As of July 2, 2022, the cumulative unrealized gain for qualifying hedges was reported as a component of accumulated other comprehensive income in the amount of $
The following table presents the aggregate fair value of the Company’s derivative financial instruments by balance sheet classification and location:
|
|
|
|
|
|
|
Fair Value |
|
|||||
|
|
|
Balance Sheet Classification |
|
Balance Sheet Location |
|
July 2, 2022 |
|
|
January 1, 2022 |
|
||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap - 2019 swap |
|
Current asset |
|
Prepaid expenses and other current assets |
|
$ |
|
|
|
$ |
— |
|
|
Interest rate swap - 2019 swap |
|
Noncurrent asset |
|
Other noncurrent assets |
|
|
|
|
|
|
— |
|
|
Total assets |
|
|
|
|
|
$ |
|
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap - 2018 swap |
|
Current liability |
|
Derivative payable |
|
$ |
|
|
|
$ |
— |
|
|
Interest rate swaps - current swaps |
|
Current liability |
|
Derivative payable |
|
|
— |
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
The Company is hedging forecasted transactions for periods not exceeding the next
19
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
12. |
Fair Value Measurements |
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
|
|
• |
Level 1 – Quoted prices in active markets for identical assets or liabilities. |
|
|
• |
Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
|
• |
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs.
Fair Value of Financial Instruments
The Company’s significant financial instruments include long-term debt and interest rate swap agreements as of July 2, 2022 and January 1, 2022. Since there were
The fair value of the Company’s Credit Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of July 2, 2022 and January 1, 2022, the fair value of the Company’s long-term debt was approximately $
Derivative Financial Instruments
The fair values for the Company’s derivative financial instruments are determined using observable current market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include consideration of counterparty credit risk. See Note 11 for disclosures related to derivative financial instruments.
The following table presents the aggregate fair value of the Company’s derivative financial instruments:
|
|
|
|
|
|
|
|
Fair Value Measurements Using: |
|
|||||||||
|
|
|
Total Fair Value |
|
|
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
||||
|
Interest rate swap current asset at July 2, 2022 |
|
$ |
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
Interest rate swap noncurrent asset at July 2, 2022 |
|
$ |
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
Interest rate swap current liability at July 2, 2022 |
|
$ |
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
Interest rate swap current liability at January 1, 2022 |
|
$ |
|
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
The Company did
20
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
13. |
Accumulated Other Comprehensive Loss |
Amounts reclassified out of accumulated other comprehensive loss were as follows:
Changes in Accumulated Other Comprehensive Loss by Component (1)
|
|
|
Six Months Ended July 2, 2022 |
|
|||||||||
|
|
|
(Loss) Gain on Qualifying Hedges |
|
|
Loss on Foreign Currency Translation |
|
|
Total |
|
|||
|
Beginning balance at January 1, 2022 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income (loss) before reclassifications, net of tax |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax (2) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net current period other comprehensive income (loss) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Ending balance at July 2, 2022 |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
(1) |
|
|
(2) |
|
|
|
|
Six Months Ended July 3, 2021 |
|
|||||||||
|
|
|
Loss on Qualifying Hedges |
|
|
Loss on Foreign Currency Translation |
|
|
Total |
|
|||
|
Beginning balance at January 2, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Other comprehensive income before reclassifications, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive loss, net of tax (2) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net current period other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance at July 3, 2021 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
(1) |
Amounts in parentheses indicate debits |
|
(2) |
See separate table below for details about these reclassifications |
Reclassifications out of Accumulated Other Comprehensive Loss (1)
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
July 3, |
|
|
|
||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
|
||||
|
Details about Other Comprehensive Loss Components |
Amounts Reclassified from Accumulated Other Comprehensive Loss |
|
|
Amounts Reclassified from Accumulated Other Comprehensive Loss |
Affected Line Item in the Statement Where Net Income is Presented |
||||||||||||
|
Loss on Qualifying Hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Interest expense |
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
(Loss) income before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net (loss) income |
|
(1) |
|
21
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
14. |
Segment Data |
The Company has
Information about the Company’s reportable segments is as follows:
|
|
Total Revenues, net |
|
|
Total Revenues, net |
|
|
||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
July 3, |
|
|
||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
||||
|
North America |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Continental Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues, net |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Net (Loss) Income |
|
|
Net Loss |
|
|
||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
July 3, |
|
|
||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
||||
|
Segment operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Continental Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Early extinguishment of debt |
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
(Benefit from) provision for income taxes |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
Net (loss) income |
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
Depreciation and Amortization |
|
|
Depreciation and Amortization |
|
|
||||||||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
||||||||||
|
|
July 2, |
|
|
July 3, |
|
|
July 2, |
|
|
July 3, |
|
|
||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
|
||||
|
North America |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Continental Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General corporate depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
22
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
|
15. |
Related Party |
As previously disclosed, on October 18, 2015, the Company entered into the Strategic Collaboration Agreement with Oprah Winfrey, under which she would consult with the Company and participate in developing, planning, executing and enhancing the WW program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services for an initial term of
As previously disclosed, on December 15, 2019, the Company entered into an amendment of the Strategic Collaboration Agreement with Ms. Winfrey, pursuant to which, among other things, the Initial Term of the Strategic Collaboration Agreement was extended until April 17, 2023 (with no additional successive renewal terms) after which a second term will commence and continue through the earlier of the date of the Company’s 2025 annual meeting of shareholders or May 31, 2025. Ms. Winfrey will continue to provide the above-described services during the remainder of the Initial Term and, during the second term, will provide certain consulting and other services to the Company.
In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $
The Company’s accounts payable to parties related to Ms. Winfrey at July 2, 2022 and January 1, 2022 was $
During the six months ended July 3, 2021, as permitted by the transfer provisions set forth in the previously disclosed Share Purchase Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, as amended, and the previously disclosed Winfrey Option Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, Ms. Winfrey sold
16.Restructuring
2022 Plan
As previously disclosed, in the second quarter of fiscal 2022, the Company committed to a restructuring plan consisting of (i) an organizational realignment to simplify the Company’s corporate structure and reduce associated costs (the “Organizational Realignment”) and (ii) a continued rationalization of its real estate portfolio resulting in the termination of certain of the Company’s operating leases (together with the Organizational Realignment, the “2022 Plan”). In connection with the 2022 Plan, the Company previously expected to record restructuring charges ranging between $
The Organizational Realignment has resulted and will result in the elimination of certain positions and termination of employment for certain employees worldwide. In connection with its Organizational Realignment, the Company previously expected to record charges of approximately $
In connection with the termination of certain of its operating leases, the Company continues to expect to record charges of approximately $
Substantially all of these costs arising from the 2022 Plan are expected to result in cash expenditures related to separation payments, other employee termination expenses and lease termination payments.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
|
July 2, 2022 |
|
|
July 2, 2022 |
|
||
|
Lease termination and other related costs |
$ |
|
|
|
$ |
|
|
|
Employee termination benefit costs |
|
|
|
|
|
|
|
|
Other costs |
|
|
|
|
|
|
|
|
Total restructuring expenses |
$ |
|
|
|
$ |
|
|
23
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
For the three and six months ended July 2, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
|
July 2, 2022 |
|
|
July 2, 2022 |
|
||
|
Cost of revenues |
$ |
|
|
|
$ |
|
|
|
Selling, general and administrative expenses |
|
|
|
|
|
|
|
|
Total restructuring expenses |
$ |
|
|
|
$ |
|
|
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.
For the six months ended July 2, 2022, the Company made payments of $
The Company expects the remaining lease termination liability of $
2021 Plan
As previously disclosed, in the first quarter of fiscal 2021, as the Company continued to evaluate its cost structure, anticipate consumer demand and focus on costs, the Company committed to a plan which has resulted in the termination of operating leases and elimination of certain positions worldwide. For the fiscal year ended January 1, 2022, the Company recorded restructuring expenses totaling $
For the fiscal year ended January 1, 2022, the components of the Company’s restructuring expenses were as follows:
|
|
Fiscal Year Ended |
|
|
|
|
January 1, 2022 |
|
|
|
Lease termination and other related costs |
$ |
|
|
|
Employee termination benefit costs |
|
|
|
|
Total restructuring expenses |
$ |
|
|
For the fiscal year ended January 1, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
|
|
Fiscal Year Ended |
|
|
|
|
January 1, 2022 |
|
|
|
Cost of revenues |
$ |
|
|
|
Selling, general and administrative expenses |
|
|
|
|
Total restructuring expenses |
$ |
|
|
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.
For the fiscal year ended January 1, 2022, the Company made payments of $
For the six months ended July 2, 2022, the Company made payments of $
The Company expects the remaining lease termination liability of $
24
WW INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT AMOUNTS)
2020 Plan
As previously disclosed, in the second quarter of fiscal 2020, in connection with its cost-savings initiative, and its continued response to the COVID-19 pandemic and the related shift in market conditions, the Company committed to a plan of reduction in force which has resulted in the elimination of certain positions and termination of employment for certain employees worldwide. To adjust to anticipated consumer demand, the Company evolved its workshop strategy and expanded its restructuring plan to include lease termination and other related costs. For the fiscal year ended January 2, 2021, the Company recorded restructuring expenses totaling $
For the fiscal year ended January 2, 2021, the components of the Company’s restructuring expenses were as follows:
|
|
Fiscal Year Ended |
|
|
|
|
January 2, 2021 |
|
|
|
Lease termination and other related costs |
$ |
|
|
|
Employee termination benefit costs |
|
|
|
|
Total restructuring expenses |
$ |
|
|
For the fiscal year ended January 2, 2021, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
|
|
Fiscal Year Ended |
|
|
|
|
January 2, 2021 |
|
|
|
Cost of revenues |
$ |
|
|
|
Selling, general and administrative expenses |
|
|
|
|
Total restructuring expenses |
$ |
|
|
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments.
For the fiscal year ended January 2, 2021, the Company made payments of $
For the fiscal year ended January 1, 2022, the Company made payments of $
For the six months ended July 2, 2022, the Company made payments of $
As of July 2, 2022, there was
25
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, this Quarterly Report on Form 10-Q includes “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including, in particular, the statements about our plans, strategies, objectives and prospects and the impact of the COVID-19 virus under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have generally used the words “may,” “will,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “aim” and similar expressions in this Quarterly Report on Form 10-Q to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Actual results could differ materially from those projected in these forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:
|
|
• |
the impact of the ongoing global outbreak of the COVID-19 virus on our business and liquidity and on the business and consumer environment and markets in which we operate; |
|
|
• |
competition from other weight management and wellness industry participants or the development of more effective or more favorably perceived weight management methods; |
|
|
• |
our failure to continue to retain and grow our subscriber base; |
|
|
• |
our ability to continue to develop new, innovative services and products and enhance our existing services and products or the failure of our services, products or brands to continue to appeal to the market, or our ability to successfully expand into new channels of distribution or respond to consumer trends or sentiment; |
|
|
• |
the ability to successfully implement strategic initiatives; |
|
|
• |
the effectiveness and efficiency of our advertising and marketing programs, including the strength of our social media presence; |
|
|
• |
the impact on our reputation of actions taken by our franchisees, licensees, suppliers and other partners; |
|
|
• |
the recognition of asset impairment charges; |
|
|
• |
the loss of key personnel, strategic partners or consultants or failure to effectively manage and motivate our workforce; |
|
|
• |
our chief executive officer transition; |
|
|
• |
the inability to renew certain of our licenses, or the inability to do so on terms that are favorable to us; |
|
|
• |
the expiration or early termination by us of leases; |
|
|
• |
uncertainties related to a downturn in general economic conditions or consumer confidence, including the potential impact of political and social unrest, and the existing inflationary environment; |
|
|
• |
our ability to successfully make acquisitions or enter into joint ventures or collaborations, including our ability to successfully integrate, operate or realize the anticipated benefits of such businesses; |
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• |
the seasonal nature of our business; |
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• |
the impact of events that discourage or impede people from gathering with others or impede accessing resources; |
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• |
our failure to maintain effective internal control over financial reporting; |
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• |
the impact of our substantial amount of debt, debt service obligations and debt covenants, and our exposure to variable rate indebtedness; |
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• |
the ability to generate sufficient cash to service our debt and satisfy our other liquidity requirements; |
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• |
uncertainties regarding the satisfactory operation of our technology or systems; |
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• |
the impact of data security breaches and other malicious acts or privacy concerns, including the costs of compliance with evolving privacy laws and regulations; |
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• |
our ability to enforce our intellectual property rights both domestically and internationally, as well as the impact of our involvement in any claims related to intellectual property rights; |
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• |
risks and uncertainties associated with our international operations, including regulatory, economic, political, social, intellectual property, and foreign currency risks, which risks may be exacerbated as a result of the war in Ukraine; |
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• |
the outcomes of litigation or regulatory actions; |
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• |
the impact of existing and future laws and regulations; |
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• |
the possibility that the interests of Artal Group S.A., or Artal, the largest holder of our common stock and a shareholder with significant influence over us, will conflict with our interests or the interests of other holders of our common stock; |
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• |
the impact that the sale of substantial amounts of our common stock by existing large shareholders, or the perception that such sales could occur, could have on the market price of our common stock; and |
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• |
other risks and uncertainties, including those detailed from time to time in our periodic reports filed with the Securities and Exchange Commission. |
26
You should not put undue reliance on any forward-looking statements. You should understand that many important factors, including those discussed herein, could cause our results to differ materially from those expressed or suggested in any forward-looking statement. Except as required by law, we do not undertake any obligation to update or revise these forward-looking statements to reflect new information or events or circumstances that occur after the date of this Quarterly Report on Form 10-Q or to reflect the occurrence of unanticipated events or otherwise.
27
|
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
WW International, Inc. is a Virginia corporation with its principal executive offices in New York, New York. In this Quarterly Report on Form 10-Q unless the context indicates otherwise: “we,” “us,” “our,” the “Company,” “Weight Watchers” and “WW” refer to WW International, Inc. and all of its operations consolidated for purposes of its financial statements; “North America” refers to our North American Company-owned operations; “Continental Europe” refers to our Continental Europe Company-owned operations; “United Kingdom” refers to our United Kingdom Company-owned operations; and “Other” refers to Australia, New Zealand and emerging markets operations and franchise revenues and related costs. Each of North America, Continental Europe, United Kingdom and Other is also a reportable segment. Our “Digital” business refers to providing subscriptions to our digital product offerings, including Personal Coaching + Digital and Digital 360 as applicable. Our “Workshops + Digital” business refers to providing unlimited access to our workshops combined with our digital subscription product offerings to commitment plan subscribers, including former Digital 360 members as applicable. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including our “pay-as-you-go” members. In the second quarter of fiscal 2022, we ceased offering our Digital 360 product. More than a majority of associated members were transitioned from our Digital business to our Workshops + Digital business during the second quarter, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. The cessation of this product offering and these transitions of former Digital 360 members at the then-current pricing for such product impacted the number of End of Period Subscribers in each business as well as the associated Paid Weeks and Revenues for each business.
Our fiscal year ends on the Saturday closest to December 31st and consists of either 52- or 53-week periods. In this Quarterly Report on Form 10-Q:
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“fiscal 2015” refers to our fiscal year ended January 2, 2016; |
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• |
“fiscal 2020” refers to our fiscal year ended January 2, 2021 (included a 53rd week); |
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• |
“fiscal 2021” refers to our fiscal year ended January 1, 2022; |
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• |
“fiscal 2022” refers to our fiscal year ended December 31, 2022; |
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• |
“fiscal 2023” refers to our fiscal year ended December 30, 2023; |
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• |
“fiscal 2024” refers to our fiscal year ended December 28, 2024; |
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• |
“fiscal 2025” refers to our fiscal year ended January 3, 2026 (includes a 53rd week); |
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• |
“fiscal 2026” refers to our fiscal year ended January 2, 2027; and |
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• |
“fiscal 2027” refers to our fiscal year ended January 1, 2028. |
The following terms used in this Quarterly Report on Form 10-Q are our trademarks: Digital 360®, PersonalPointsTM and Weight Watchers®.
You should read the following discussion in conjunction with our Annual Report on Form 10-K for fiscal 2021 that includes additional information about us, our results of operations, our financial position and our cash flows, and with our unaudited consolidated financial statements and related notes included in Item 1 of this Quarterly Report on Form 10-Q (collectively referred to as the “Consolidated Financial Statements”).
28
NON-GAAP FINANCIAL MEASURES
To supplement our consolidated results presented in accordance with accounting principles generally accepted in the United States, or GAAP, we have disclosed non-GAAP financial measures of operating results that exclude or adjust certain items. Gross profit, gross profit margin, operating income, operating income margin and components thereof are discussed in this Quarterly Report on Form 10-Q both as reported (on a GAAP basis) and as adjusted (on a non-GAAP basis), as applicable, with respect to (i) the second quarter of fiscal 2022 to exclude (a) the impact of impairment charges for our franchise rights acquired related to our Canada and New Zealand units of account and the impairment charge for our goodwill related to our wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) and (b) the net impact of (x) charges associated with our previously disclosed 2022 restructuring plan (the “2022 plan”) and (y) the reversal of certain of the charges associated with our previously disclosed 2021 organizational restructuring plan (the “2021 plan”); (ii) the first six months of fiscal 2022 to exclude (a) the impact of impairment charges for our franchise rights acquired related to our Canada and New Zealand units of account and the impairment charge for our goodwill related to Kurbo, and (b) the net impact of (x) charges associated with the 2022 plan, (y) charges associated with the 2021 plan or the reversal of certain of the charges associated with the 2021 plan, as applicable, and (z) the reversal of certain of the charges associated with our previously disclosed 2020 organizational restructuring plan (the “2020 plan”); and (iii) the second quarter and first six months of fiscal 2021 to exclude the net impact of (x) charges associated with the 2021 plan and (y) the reversal of certain of the charges associated with the 2020 plan. We generally refer to such non-GAAP measures as follows: (i) with respect to the adjustments for the second quarter and first six months of fiscal 2022, as excluding or adjusting for the impact of franchise rights acquired and goodwill impairments and the net impact of restructuring charges; and (ii) with respect to the adjustments for the second quarter and first six months of fiscal 2021, as excluding or adjusting for the net impact of restructuring charges. We also present within this Quarterly Report on Form 10-Q the non-GAAP financial measures: earnings before interest, taxes, depreciation, amortization and stock-based compensation (“EBITDAS”); earnings before interest, taxes, depreciation, amortization, stock-based compensation, franchise rights acquired and goodwill impairments, net restructuring charges, and early extinguishment of debt with respect to the Company’s previously disclosed April 2021 debt refinancing and voluntary debt prepayments (“Adjusted EBITDAS”); total debt less unamortized deferred financing costs, unamortized debt discount and cash on hand (i.e., net debt); and a net debt/Adjusted EBITDAS ratio. See “—Liquidity and Capital Resources—EBITDAS, Adjusted EBITDAS and Net Debt” for the reconciliations of these non-GAAP financial measures to the most comparable GAAP financial measure in each case. Our management believes these non-GAAP financial measures provide useful supplemental information to investors regarding the performance of our business and are useful for period-over-period comparisons of the performance of our business. While we believe that these non-GAAP financial measures are useful in evaluating our business, this information should be considered as supplemental in nature and is not meant to be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies.
USE OF CONSTANT CURRENCY
As exchange rates are an important factor in understanding period-to-period comparisons, we believe in certain cases the presentation of results on a constant currency basis in addition to reported results helps improve investors’ ability to understand our operating results and evaluate our performance in comparison to prior periods. Constant currency information compares results between periods as if exchange rates had remained constant period-over-period. We use results on a constant currency basis as one measure to evaluate our performance. In this Quarterly Report on Form 10-Q, we calculate constant currency by calculating current-year results using prior-year foreign currency exchange rates. We generally refer to such amounts calculated on a constant currency basis as excluding or adjusting for the impact of foreign currency or being on a constant currency basis. These results should be considered in addition to, not as a substitute for, results reported in accordance with GAAP and are not meant to be considered in isolation. Results on a constant currency basis, as we present them, may not be comparable to similarly titled measures used by other companies and are not measures of performance presented in accordance with GAAP.
29
CRITICAL ACCOUNTING ESTIMATES
Franchise Rights Acquired
Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested for potential impairment on at least an annual basis or more often if events so require.
In performing the impairment analysis for our indefinite-lived franchise rights acquired, the fair value for our franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for our franchise rights related to our Workshops + Digital business and a relief from royalty methodology for our franchise rights related to our Digital business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. We have determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of these franchise rights in the United States, Canada, United Kingdom, Australia and New Zealand as of the July 2, 2022 balance sheet date were $698.4 million, $34.6 million, $10.9 million, $6.1 million and $3.6 million, respectively.
In our hypothetical start-up approach analysis for fiscal 2022, we assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, we estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. In our relief from royalty approach analysis for fiscal 2022, the cash flows associated with the Digital business in each country were based on the expected Digital revenue for such country and the application of a royalty rate based on current market terms. The cash flows for the Workshops + Digital and the Digital businesses were discounted utilizing rates which were calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.
Goodwill
In performing the impairment analysis for goodwill, the fair value for our reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. We have determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The net book values of goodwill in the United States, Canada and other countries as of the July 2, 2022 balance sheet date were $104.0 million, $41.6 million and $14.3 million, respectively.
For all of our reporting units tested as of May 8, 2022, we estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. We utilized operating income as the basis for measuring our potential growth because we believe it is the best indicator of the performance of our business. We then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt.
Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test
We review indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, and goodwill for potential impairment on at least an annual basis or more often if events so require. We performed fair value impairment testing as of May 8, 2022 and May 9, 2021, each the first day of fiscal May, on our indefinite-lived intangible assets and goodwill.
In performing our annual impairment analysis as of May 8, 2022, we determined that (i) the carrying amounts of our Canada and New Zealand franchise rights acquired with indefinite lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our Canada and New Zealand units of account of $24.5 million and $0.8 million, respectively, in the second quarter of fiscal 2022; and (ii) the carrying amounts of all of our other franchise rights acquired with indefinite lived units of account did not exceed their respective fair values and, therefore, no impairment existed with respect thereto. In performing our annual impairment analysis as of May 9, 2021, we determined that the carrying amounts of our franchise rights acquired with indefinite lived units of account did not exceed their respective fair values and, therefore, no impairment existed. In performing our annual impairment analysis as of May 8, 2022 and May 9, 2021, the Company determined that the carrying amounts of our goodwill reporting units did not exceed their respective fair values and, therefore, no impairment existed.
When determining fair value, we utilize various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, we would be required to record a corresponding charge, which would impact earnings. We would also be required to reduce the carrying amounts of the related assets on our balance sheet. We continue to evaluate these assumptions and believe that these assumptions are appropriate.
30
In performing our annual impairment analysis, we also considered the trading value of both our equity and debt. If the trading values of both our equity and debt were to significantly decline from their levels at the time of testing, we may have to take an impairment charge at the appropriate time, which could be material. For additional information on risks associated with our recognizing asset impairment charges, see “Item 1A. Risk Factors” of our Annual Report on Form 10-K for fiscal 2021.
Based on the results of our May 8, 2022 annual franchise rights acquired impairment analysis performed for our United States unit of account, which holds 92.7% of our franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately 15%. Based on the results of our May 8, 2022 annual franchise rights acquired impairment analysis performed for our Canada and New Zealand units of account, which hold 4.6% and 0.5%, respectively, of our franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. Accordingly, a change in the underlying assumptions for the United States, Canada and New Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $698.4 million, $34.6 million and $3.6 million, respectively, as of July 2, 2022. Based on the results of our May 8, 2022 annual franchise rights acquired impairment analysis performed for our remaining units of account, which collectively hold 2.2% of our franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account exceeded their respective carrying values by over 100%.
In performing this impairment analysis for fiscal 2022, in our hypothetical start-up approach analysis, for the year of maturity, we assumed Workshops + Digital revenue (comprised of Workshops + Digital Fees and revenues from products sold to members in studios) growth of 23.0% to 106.2% in the year of maturity from fiscal 2021, in each case, earned in the applicable country and assumed cumulative annual revenue growth rates for the years beyond the year of maturity of 2.4%. For the year of maturity and beyond, we assumed operating income margin rates of (3.0%) to 8.8%. In our relief from royalty approach, we assumed Digital revenue growth in each country of (25.6%) to 16.1% for fiscal 2022.
Based on the results of our May 8, 2022 annual goodwill impairment analysis performed for all of our reporting units, all units, except for the Republic of Ireland, had an estimated fair value at least 35% higher than the respective unit’s carrying amount. Collectively, these reporting units represented 97.3% of our total goodwill as of the July 2, 2022 balance sheet date. Based on the results of our May 8, 2022 annual goodwill impairment analysis performed for our Republic of Ireland reporting unit, which holds 2.7% of our goodwill as of the July 2, 2022 balance sheet date, the estimated fair value of this reporting unit exceeded its carrying value by approximately 14%. Accordingly, a change in the underlying assumptions for the Republic of Ireland may change the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to the Republic of Ireland, for which the net book value was $4.3 million as of July 2, 2022.
The following are the more significant assumptions utilized in our annual impairment analyses for fiscal 2022 and fiscal 2021:
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Fiscal 2022 |
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Fiscal 2021 |
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Debt-Free Cumulative Annual Cash Flow Growth Rate |
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1.2% to 20.6% |
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0.2% to 2.6% |
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Discount Rate |
|
9.6% |
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8.5% |
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Kurbo Goodwill Impairment
On August 10, 2018, we acquired substantially all of the assets of Kurbo Health, Inc., a family-based healthy lifestyle coaching program, for a net purchase price of $3.1 million, of which $1.1 million was allocated to goodwill. The goodwill was deductible annually for tax purposes. We determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of our strategic plan. As a result of this determination, we recorded an impairment charge of $1.1 million in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.
Critical Accounting Policies
Information concerning our critical accounting policies is set forth in “Note 2. Summary of Significant Accounting Policies” of our audited consolidated financial statements contained in our Annual Report on Form 10-K for fiscal 2021. Our critical accounting policies have not changed since the end of fiscal 2021.
31
PERFORMANCE INDICATORS
Our management team regularly reviews and analyzes a number of financial and operating metrics, including the key performance indicators listed below, in order to manage our business, measure our performance, identify trends affecting our business, determine the allocation of resources, make decisions regarding corporate strategies and assess the quality and potential variability of our cash flows and earnings. We also believe that these key performance indicators are useful to both management and investors for forecasting purposes and to facilitate comparisons to our historical operating results. These metrics are supplemental to our GAAP results and include operational measures.
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• |
Revenues—Our “Subscription Revenues” consist of “Digital Subscription Revenues” and “Workshops + Digital Fees”. “Digital Subscription Revenues” consist of the fees associated with subscriptions for our Digital offerings, including Personal Coaching + Digital and Digital 360 as applicable. “Workshops + Digital Fees” consist of the fees associated with our subscription plans for combined workshops and digital offerings and other payment arrangements for access to workshops. In addition, “product sales and other” consists of sales of consumer products via e-commerce, in studios and through our trusted partners, revenues from licensing and publishing, other revenues, and, in the case of the consolidated financial results and Other reportable segment, franchise fees with respect to commitment plans and royalties. |
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• |
Paid Weeks—The “Paid Weeks” metric reports paid weeks by WW customers in Company-owned operations for a given period as follows: (i) “Digital Paid Weeks” is the total paid subscription weeks for our digital subscription products (including Personal Coaching + Digital and Digital 360 as applicable); (ii) “Workshops + Digital Paid Weeks” is the sum of total paid commitment plan weeks which include workshops and digital offerings and total “pay-as-you-go” weeks; and (iii) “Total Paid Weeks” is the sum of Digital Paid Weeks and Workshops + Digital Paid Weeks. |
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• |
Incoming Subscribers—“Subscribers” refer to Digital subscribers and Workshops + Digital subscribers who participate in recur bill programs in Company-owned operations. The “Incoming Subscribers” metric reports WW subscribers in Company-owned operations at a given period start as follows: (i) “Incoming Digital Subscribers” is the total number of Digital, including Personal Coaching + Digital and Digital 360 (as applicable), subscribers; (ii) “Incoming Workshops + Digital Subscribers” is the total number of commitment plan subscribers that have access to combined workshops and digital offerings; and (iii) “Incoming Subscribers” is the sum of Incoming Digital Subscribers and Incoming Workshops + Digital Subscribers. Recruitment and retention are key drivers for this metric. |
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• |
End of Period Subscribers—The “End of Period Subscribers” metric reports WW subscribers in Company-owned operations at a given period end as follows: (i) “End of Period Digital Subscribers” is the total number of Digital, including Personal Coaching + Digital and Digital 360 (as applicable), subscribers; (ii) “End of Period Workshops + Digital Subscribers” is the total number of commitment plan subscribers that have access to combined workshops and digital offerings; and (iii) “End of Period Subscribers” is the sum of End of Period Digital Subscribers and End of Period Workshops + Digital Subscribers. Recruitment and retention are key drivers for this metric. |
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• |
Gross profit and operating expenses as a percentage of revenue. |
In the second quarter of fiscal 2022, we ceased offering our Digital 360 product. More than a majority of associated members were transitioned from our Digital business to our Workshops + Digital business during the second quarter, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. The cessation of this product offering and these transitions of former Digital 360 members at the then-current pricing for such product impacted the number of End of Period Subscribers in each business as well as the associated Paid Weeks and Revenues for each business. For additional details on the cessation of our Digital 360 offering and the impact of those former Digital 360 members who transitioned from our Digital business to our Workshops + Digital business, see “—Segment Results.”
32
COVID-19 PANDEMIC
The novel coronavirus (including its variants, COVID-19) pandemic continues to evolve and have unpredictable impacts on consumer sentiment and behavior and on our business operations and the markets in which we operate. We have seen significant shifts in consumer sentiment with respect to the weight loss and wellness marketplace, which we believe in part is attributable to the evolution of the pandemic. COVID-19 has had a significant effect on our recruitments since its onset. Our Workshops + Digital recruitments were substantially negatively impacted during the first year of the pandemic. While Digital recruitments were strong in the beginning of the COVID-19 pandemic, a subsequent turn in consumer sentiment drove a decline in Digital recruitments. Given the long-term subscription model of our business, these declines in recruitment continued to impact the number of our End of Period Subscribers in the second quarter of fiscal 2022, which declined compared to the prior year period. Additionally, our mix shift toward our Digital business, which was significant during the onset of the pandemic, especially when amplified by the nature of our subscription business, negatively impacted revenue. Over the longer term, it remains uncertain how the COVID-19 pandemic will impact consumer demand for our products and services and consumer preferences and behavior generally.
The extent to which our operations and business trends will continue in future periods to be impacted by, and any unforeseen costs will result from, the ongoing outbreak of COVID-19 will depend largely on future developments, which are highly uncertain and cannot be accurately predicted. These developments include, among other things, the severity of any variant or surges in COVID-19 cases, new information about health implications, vaccine availability and hesitancy, and actions by government authorities to contain the outbreak or treat its impact. This dynamic situation is driving uncertainty at the macroeconomic, local and consumer levels. We continue to actively monitor the ongoing global outbreak of COVID-19 and its impact and related developments.
As we continue to address the impact of the pandemic, and the related evolving legal and consumer landscape, we are focused on how to best meet our members’ and consumers’ needs. We continue to serve our members virtually, both via our Digital business and through virtual workshops, and to evolve our workshop strategy as we evaluate our cost structure and respond to shifting consumer sentiment. We consolidated certain of our studios and continue to close certain other branded studio locations. We continually evaluate our studio locations, and the decision to operate at any particular studio location is influenced by a number of factors, including consumer confidence and preferences, changes in consumer sentiment and behavior, the protection of the health and safety of our employees and members and applicable legal restrictions, and is dependent on cost efficiencies and alignment with our strategy. The current number of our studio locations is significantly lower than that prior to the pandemic, and we expect it to remain below pre-COVID-19 levels. As a result, we have incurred, and may continue to incur, significant costs associated with our real estate realignment.
While we expect the effects of the pandemic and the related responses, including shifts in consumer sentiment and behavior, to negatively impact our results of operations, cash flows and financial position, the uncertainty of the full extent of the duration and severity of the consumer, economic and operational impacts of COVID-19 means we cannot reasonably estimate the related financial impact at this time. For more information, see “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for fiscal 2021. We continue to believe that our powerful communities and our ability to inspire people to adopt healthy habits will be invaluable to people across the globe as they continue to acclimate to new social and economic environments, and that they uniquely position us in the markets in which we operate.
33
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 2, 2022 COMPARED TO THE THREE MONTHS ENDED JULY 3, 2021
The table below sets forth selected financial information for the second quarter of fiscal 2022 from our consolidated statements of net income for the three months ended July 2, 2022 versus selected financial information for the second quarter of fiscal 2021 from our consolidated statements of net income for the three months ended July 3, 2021.
Summary of Selected Financial Data
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|
|
(In millions, except per share amounts) |
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|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
For The Three Months Ended |
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|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
July 2, 2022 |
|
|
July 3, 2021 |
|
|
Increase/ (Decrease) |
|
|
% Change |
|
|
% Change Constant Currency |
|
|
|||||
|
Revenues, net |
|
$ |
269.5 |
|
|
$ |
311.4 |
|
|
$ |
(41.9 |
) |
|
|
(13.5 |
%) |
|
|
(10.0 |
%) |
|
|
Cost of revenues |
|
|
106.5 |
|
|
|
125.4 |
|
|
|
(18.9 |
) |
|
|
(15.0 |
%) |
|
|
(12.6 |
%) |
|
|
Gross profit |
|
|
163.0 |
|
|
|
186.0 |
|
|
|
(23.1 |
) |
|
|
(12.4 |
%) |
|
|
(8.3 |
%) |
|
|
Gross Margin % |
|
|
60.5 |
% |
|
|
59.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
51.9 |
|
|
|
57.2 |
|
|
|
(5.3 |
) |
|
|
(9.3 |
%) |
|
|
(5.9 |
%) |
|
|
Selling, general & administrative expenses |
|
|
71.3 |
|
|
|
69.2 |
|
|
|
2.1 |
|
|
|
3.1 |
% |
|
|
5.3 |
% |
|
|
Franchise rights acquired and goodwill impairments |
|
|
26.4 |
|
|
|
— |
|
|
|
26.4 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
Operating income |
|
|
13.4 |
|
|
|
59.7 |
|
|
|
(46.3 |
) |
|
|
(77.6 |
%) |
|
|
(72.6 |
%) |
|
|
Operating Income Margin % |
|
|
5.0 |
% |
|
|
19.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
19.3 |
|
|
|
20.3 |
|
|
|
(1.0 |
) |
|
|
(5.1 |
%) |
|
|
(5.1 |
%) |
|
|
Other expense, net |
|
|
1.6 |
|
|
|
0.4 |
|
|
|
1.2 |
|
|
100.0 |
% |
* |
100.0 |
% |
* |
||
|
Early extinguishment of debt |
|
|
— |
|
|
|
29.2 |
|
|
|
(29.2 |
) |
|
|
(100.0 |
%) |
|
|
(100.0 |
%) |
|
|
(Loss) income before income taxes |
|
|
(7.5 |
) |
|
|
9.8 |
|
|
|
(17.3 |
) |
|
|
(100.0 |
%) |
* |
|
(100.0 |
%) |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit from) provision for income taxes |
|
|
(2.9 |
) |
|
|
1.0 |
|
|
|
(3.8 |
) |
|
|
(100.0 |
%) |
* |
|
(100.0 |
%) |
* |
|
Net (loss) income |
|
$ |
(4.6 |
) |
|
$ |
8.9 |
|
|
$ |
(13.5 |
) |
|
|
(100.0 |
%) |
* |
|
(100.0 |
%) |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
70.3 |
|
|
|
71.2 |
|
|
|
(0.9 |
) |
|
|
(1.2 |
%) |
|
|
(1.2 |
%) |
|
|
Diluted (net loss) earnings per share |
|
$ |
(0.07 |
) |
|
$ |
0.12 |
|
|
$ |
(0.19 |
) |
|
|
(100.0 |
%) |
* |
|
(100.0 |
%) |
* |
Note: Totals may not sum due to rounding.
*Note: Percentage in excess of 100.0%.
34
Certain results for the second quarter of fiscal 2022 are adjusted to exclude the impact of the $26.4 million of franchise rights acquired and goodwill impairments and the net impact of the $19.1 million of 2022 plan restructuring charges and the reversal of $0.6 million of 2021 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended July 2, 2022 which have been adjusted.
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Operating |
|
||
|
|
|
Gross |
|
|
Profit |
|
|
Operating |
|
|
Income |
|
||||
|
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
|
Second Quarter of Fiscal 2022 |
|
$ |
163.0 |
|
|
|
60.5 |
% |
|
$ |
13.4 |
|
|
|
5.0 |
% |
|
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise rights acquired and goodwill impairments |
|
|
— |
|
|
|
|
|
|
|
26.4 |
|
|
|
|
|
|
2022 plan restructuring charges |
|
|
4.5 |
|
|
|
|
|
|
|
19.1 |
|
|
|
|
|
|
2021 plan restructuring charges |
|
|
(0.6 |
) |
|
|
|
|
|
|
(0.6 |
) |
|
|
|
|
|
Total adjustments (1) |
|
|
3.9 |
|
|
|
|
|
|
|
45.0 |
|
|
|
|
|
|
Second Quarter of Fiscal 2022, as adjusted (1) |
|
$ |
166.9 |
|
|
|
61.9 |
% |
|
$ |
58.3 |
|
|
|
21.7 |
% |
Note: Totals may not sum due to rounding.
|
(1) |
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the second quarter of fiscal 2022 to exclude the impact of the $26.4 million ($21.3 million after tax) of franchise rights acquired and goodwill impairments and the net impact of the $19.1 million ($14.3 million after tax) of 2022 plan restructuring charges and the reversal of $0.6 million ($0.4 million after tax) of 2021 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Certain results for the second quarter of fiscal 2021 are adjusted to exclude the net impact of the $6.0 million of 2021 plan restructuring charges and the reversal of $0.8 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the three months ended July 3, 2021 which have been adjusted.
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Operating |
|
||
|
|
|
Gross |
|
|
Profit |
|
|
Operating |
|
|
Income |
|
||||
|
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
|
Second Quarter of Fiscal 2021 |
|
$ |
186.0 |
|
|
|
59.7 |
% |
|
$ |
59.7 |
|
|
|
19.2 |
% |
|
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 plan restructuring charges |
|
|
5.6 |
|
|
|
|
|
|
|
6.0 |
|
|
|
|
|
|
2020 plan restructuring charges |
|
|
(0.6 |
) |
|
|
|
|
|
|
(0.8 |
) |
|
|
|
|
|
Total adjustments (1) |
|
|
5.0 |
|
|
|
|
|
|
|
5.2 |
|
|
|
|
|
|
Second Quarter of Fiscal 2021, as adjusted (1) |
|
$ |
191.0 |
|
|
|
61.3 |
% |
|
$ |
64.9 |
|
|
|
20.8 |
% |
Note: Totals may not sum due to rounding.
|
(1) |
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the second quarter of fiscal 2021 to exclude the net impact of the $6.0 million ($4.5 million after tax) of 2021 plan restructuring charges and the reversal of $0.8 million ($0.6 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Consolidated Results
Revenues
Revenues for the second quarter of fiscal 2022 were $269.5 million, a decrease of $41.9 million, or 13.5%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted our revenues in the second quarter of fiscal 2022 by $10.7 million, revenues for the second quarter of fiscal 2022 would have decreased 10.0% versus the prior year period. This decrease was driven primarily by lower Subscription Revenues reflecting lower sign-ups primarily due to worsened consumer sentiment and our PersonalPoints program not resonating with consumers to the extent anticipated. This worsened consumer sentiment was due in part to the evolution of the COVID-19 pandemic as well as the likely impact of certain macro factors including increasing inflation, social and political unrest and challenged economic growth. See “—Segment Results” for additional details on revenues.
35
Cost of Revenues
Total cost of revenues for the second quarter of fiscal 2022 decreased $18.9 million, or 15.0%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the second quarter of fiscal 2022 by $3.0 million, cost of revenues for the second quarter of fiscal 2022 would have decreased 12.6% versus the prior year period. Excluding the net impact of the $3.9 million of restructuring charges in the second quarter of fiscal 2022 and the net impact of the $5.0 million of restructuring charges in the second quarter of fiscal 2021, total cost of revenues for the second quarter of fiscal 2022 would have decreased by 14.8%, or 12.3% on a constant currency basis, versus the prior year period.
Gross Profit
Gross profit for the second quarter of fiscal 2022 decreased $23.1 million, or 12.4%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted gross profit in the second quarter of fiscal 2022 by $7.7 million, gross profit for the second quarter of fiscal 2022 would have decreased 8.3% versus the prior year period. Excluding the net impact of the $3.9 million of restructuring charges in the second quarter of fiscal 2022 and the net impact of the $5.0 million of restructuring charges in the second quarter of fiscal 2021, gross profit for the second quarter of fiscal 2022 would have decreased by 12.6%, or 8.6% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the second quarter of fiscal 2022 increased to 60.5% versus 59.7% for the second quarter of fiscal 2021. Excluding the impact of foreign currency, gross margin in the second quarter of fiscal 2022 would have increased 1.2% to 60.9% versus the prior year period. Excluding the net impact of restructuring charges in the second quarter of fiscal 2022 and the net impact of restructuring charges in the second quarter of fiscal 2021, gross margin for the second quarter of fiscal 2022 would have increased 0.6% to 61.9% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the second quarter of fiscal 2022 and the net impact of restructuring charges in the second quarter of fiscal 2021, gross margin for the second quarter of fiscal 2022 would have increased 1.0% to 62.3% versus the prior year period. The gross margin increase was driven primarily by margin expansion in the Workshops + Digital business resulting from a more efficient studio footprint and a reduction in labor costs.
Marketing
Marketing expenses for the second quarter of fiscal 2022 decreased $5.3 million, or 9.3%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased marketing expenses in the second quarter of fiscal 2022 by $1.9 million, marketing expenses for the second quarter of fiscal 2022 would have decreased 5.9% versus the prior year period. This decrease in marketing expenses was primarily due to a decline in TV media. Marketing expenses as a percentage of revenue for the second quarter of fiscal 2022 increased to 19.2% from 18.4% for the second quarter of fiscal 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the second quarter of fiscal 2022 increased $2.1 million, or 3.1%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the second quarter of fiscal 2022 by $1.5 million, selling, general and administrative expenses for the second quarter of fiscal 2022 would have increased 5.3% versus the prior year period. Excluding the net impact of the $14.6 million of restructuring charges in the second quarter of fiscal 2022 and the net impact of the $0.2 million of restructuring charges in the second quarter of fiscal 2021, selling, general and administrative expenses for the second quarter of fiscal 2022 would have decreased by 17.8%, or 15.6% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to lower stock compensation expense. Selling, general and administrative expenses as a percentage of revenue for the second quarter of fiscal 2022 increased to 26.5% from 22.2% for the second quarter of fiscal 2021. Excluding the net impact of restructuring charges in the second quarter of fiscal 2022 and the net impact of restructuring charges in the second quarter of fiscal 2021, selling, general and administrative expenses as a percentage of revenue for the second quarter of fiscal 2022 would have decreased by 1.1%, or 1.4% on a constant currency basis, versus the prior year period.
Impairments
In performing our annual impairment analysis as of May 8, 2022, we determined that the carrying amounts of our Canada and New Zealand franchise rights acquired with indefinite lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our Canada and New Zealand units of account of $24.5 million and $0.8 million, respectively, in the second quarter of fiscal 2022. In addition, we determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of our strategic plan. As a result of this determination, we recorded an impairment charge of $1.1 million in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.
36
Operating Income
Operating income for the second quarter of fiscal 2022 decreased $46.3 million, or 77.6%, versus the second quarter of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted operating income in the second quarter of fiscal 2022 by $3.0 million, operating income for the second quarter of fiscal 2022 would have decreased 72.6% versus the prior year period. Excluding the impact of the $26.4 million of franchise rights acquired and goodwill impairments in the second quarter of fiscal 2022, the net impact of the $18.6 million of restructuring charges in the second quarter of fiscal 2022 and the net impact of the $5.2 million of restructuring charges in the second quarter of fiscal 2021, operating income for the second quarter of fiscal 2022 would have decreased by 10.1%, or 3.5% on a constant currency basis, versus the prior year period. Operating income margin for the second quarter of fiscal 2022 decreased to 5.0% versus 19.2% for the second quarter of fiscal 2021. Excluding the impact of the franchise rights acquired and goodwill impairments in the second quarter of fiscal 2022, the net impact of restructuring charges in the second quarter of fiscal 2022 and the net impact of restructuring charges in the second quarter of fiscal 2021, operating income margin for the second quarter of fiscal 2022 would have increased by 0.8%, or 1.5% on a constant currency basis, versus the prior year period. This increase in operating income margin was driven primarily by a decrease in selling, general and administrative expenses as a percentage of revenue and an increase in gross margin, partially offset by an increase in marketing expenses as a percentage of revenue, versus the prior year period.
Interest Expense
Interest expense for the second quarter of fiscal 2022 decreased $1.0 million, or 5.1%, versus the second quarter of fiscal 2021. The decrease in interest expense was driven primarily by lower interest rates under our Term Loan Facility (as defined below) and on our Senior Secured Notes (as defined below) as a result of our April 2021 debt refinancing (as defined below). The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the second quarter of fiscal 2022 and the second quarter of fiscal 2021 and excluding the impact of our interest rate swaps then in effect, remained flat at 4.73% per annum at the end of the second quarter of fiscal 2022 compared to the end of the second quarter of fiscal 2021. Including the impact of our interest rate swaps then in effect, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the second quarter of fiscal 2022 and the second quarter of fiscal 2021, decreased to 5.30% per annum at the end of the second quarter of fiscal 2022 from 5.32% per annum at the end of the second quarter of fiscal 2021. See “—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our debt, including interest rates and payments thereon. For additional details on our interest rate swaps, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in Part I of this Quarterly Report on Form 10-Q.
Other Expense, Net
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, increased by $1.2 million for the second quarter of fiscal 2022 to $1.6 million of expense as compared to $0.4 million of expense for the second quarter of fiscal 2021.
Early Extinguishment of Debt
In the second quarter of fiscal 2021, we wrote-off $29.2 million of fees in connection with our April 2021 debt refinancing that we recorded as an early extinguishment of debt charge, comprised of $12.9 million of a prepayment penalty on the Discharged Senior Notes (as defined below), $9.0 million of financing fees and $7.2 million of pre-existing deferred financing fees and debt discount. For additional details on this refinancing, see “—Liquidity and Capital Resources—Long-Term Debt”.
Tax
Our effective tax rate for the second quarter of fiscal 2022 was 38.4% as compared to 9.9% for the second quarter of fiscal 2021. The tax benefit for the second quarter of fiscal 2022 was primarily driven by a tax benefit recorded for out-of-period income tax adjustments, which was partially offset by tax expense related to tax shortfalls from stock compensation. For the second quarter of fiscal 2022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to tax benefits related to foreign-derived intangible income, or FDII, and out-of-period income tax adjustments, partially offset by state income tax expense, tax expense from income earned in foreign jurisdictions and tax expense related to tax shortfalls from stock compensation. The tax expense for the second quarter of fiscal 2021 was impacted by tax windfalls from stock compensation. For the second quarter of fiscal 2021, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.
37
Net (Loss) Income and Diluted (Net Loss) Earnings Per Share
Net loss for the second quarter of fiscal 2022 was $4.6 million compared to net income for the second quarter of fiscal 2021 of $8.9 million. Net loss for the second quarter of fiscal 2022 was negatively impacted by $1.7 million of foreign currency. Net loss for the second quarter of fiscal 2022 included a $21.3 million impact from franchise rights acquired and goodwill impairments and a $13.9 million net impact from restructuring charges. Net income for the second quarter of fiscal 2021 included a $21.8 million impact from the write-off of fees related to our April 2021 debt refinancing and a $3.9 million net impact from restructuring charges.
Diluted net loss per share for the second quarter of fiscal 2022 was $0.07 compared to earnings per fully diluted share, or EPS, of $0.12 for the second quarter of fiscal 2021. Diluted net loss per share for the second quarter of fiscal 2022 included a $0.30 impact from franchise rights acquired and goodwill impairments and a $0.20 net impact from restructuring charges. EPS for the second quarter of fiscal 2021 included a $0.31 impact from the write-off of fees related to our April 2021 debt refinancing and a $0.05 net impact from restructuring charges.
38
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for the second quarter of fiscal 2022 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
|
|
|
Q2 2022 |
|
|||||||||||||||||||||||||||||||||
|
|
|
GAAP |
|
|
Constant Currency |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
|
|
|
|
Product |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|||
|
|
|
Subscription |
|
|
Sales & |
|
|
Total |
|
|
Subscription |
|
|
Sales & |
|
|
Total |
|
|
Paid |
|
|
Incoming |
|
|
EOP |
|
|||||||||
|
|
|
Revenues |
|
|
Other |
|
|
Revenues |
|
|
Revenues |
|
|
Other |
|
|
Revenues |
|
|
Weeks |
|
|
Subscribers |
|
|
Subscribers |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|||||
|
North America |
|
$ |
166.9 |
|
|
$ |
21.1 |
|
|
$ |
188.0 |
|
|
$ |
167.3 |
|
|
$ |
21.2 |
|
|
$ |
188.5 |
|
|
|
37.8 |
|
|
|
2,986.2 |
|
|
|
2,805.1 |
|
|
CE |
|
|
56.6 |
|
|
|
5.1 |
|
|
|
61.7 |
|
|
|
64.2 |
|
|
|
5.8 |
|
|
|
70.1 |
|
|
|
15.1 |
|
|
|
1,189.5 |
|
|
|
1,118.9 |
|
|
UK |
|
|
10.9 |
|
|
|
1.9 |
|
|
|
12.8 |
|
|
|
12.1 |
|
|
|
2.1 |
|
|
|
14.2 |
|
|
|
3.4 |
|
|
|
270.1 |
|
|
|
254.8 |
|
|
Other (1) |
|
|
6.0 |
|
|
|
0.9 |
|
|
|
6.9 |
|
|
|
6.4 |
|
|
|
1.0 |
|
|
|
7.4 |
|
|
|
1.2 |
|
|
|
99.6 |
|
|
|
88.7 |
|
|
Total |
|
$ |
240.4 |
|
|
$ |
29.1 |
|
|
$ |
269.5 |
|
|
$ |
250.1 |
|
|
$ |
30.1 |
|
|
$ |
280.2 |
|
|
|
57.5 |
|
|
|
4,545.4 |
|
|
|
4,267.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change Q2 2022 vs. Q2 2021 |
|
|||||||||||||||||||||||||||||||||
|
North America |
|
|
(8.3 |
%) |
|
|
(17.8 |
%) |
|
|
(9.4 |
%) |
|
|
(8.1 |
%) |
|
|
(17.5 |
%) |
|
|
(9.2 |
%) |
|
|
(8.7 |
%) |
|
|
(5.5 |
%) |
|
|
(11.2 |
%) |
|
CE |
|
|
(18.4 |
%) |
|
|
(40.2 |
%) |
|
|
(20.8 |
%) |
|
|
(7.3 |
%) |
|
|
(32.2 |
%) |
|
|
(10.1 |
%) |
|
|
(12.4 |
%) |
|
|
(11.8 |
%) |
|
|
(12.2 |
%) |
|
UK |
|
|
(23.2 |
%) |
|
|
(33.9 |
%) |
|
|
(25.0 |
%) |
|
|
(14.5 |
%) |
|
|
(26.5 |
%) |
|
|
(16.5 |
%) |
|
|
(23.4 |
%) |
|
|
(20.6 |
%) |
|
|
(24.4 |
%) |
|
Other (1) |
|
|
(18.9 |
%) |
|
|
(33.5 |
%) |
|
|
(21.2 |
%) |
|
|
(13.0 |
%) |
|
|
(30.1 |
%) |
|
|
(15.8 |
%) |
|
|
(8.3 |
%) |
|
|
(6.9 |
%) |
|
|
(9.6 |
%) |
|
Total |
|
|
(11.9 |
%) |
|
|
(24.5 |
%) |
|
|
(13.5 |
%) |
|
|
(8.3 |
%) |
|
|
(21.9 |
%) |
|
|
(10.0 |
%) |
|
|
(10.7 |
%) |
|
|
(8.3 |
%) |
|
|
(12.3 |
%) |
Note: Totals may not sum due to rounding.
|
(1) |
Represents Australia, New Zealand and emerging markets operations and franchise revenues. |
(in millions except percentages and as noted)
|
|
|
Q2 2022 |
|
|||||||||||||||||||||||||||||||||||||
|
|
|
Digital Subscription Revenues (2) |
|
|
Digital |
|
|
Incoming |
|
|
EOP |
|
|
Workshops + Digital Fees (2) |
|
|
Workshops + Digital |
|
|
Incoming Workshops |
|
|
EOP Workshops |
|
||||||||||||||||
|
|
|
|
|
|
|
Constant |
|
|
Paid |
|
|
Digital |
|
|
Digital |
|
|
|
|
|
|
Constant |
|
|
Paid |
|
|
+ Digital |
|
|
+ Digital |
|
||||||||
|
|
|
GAAP |
|
|
Currency |
|
|
Weeks |
(2) |
|
Subscribers |
|
|
Subscribers |
(2) |
|
GAAP |
|
|
Currency |
|
|
Weeks (2) |
|
|
Subscribers |
|
|
Subscribers |
(2) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||||||||
|
North America |
|
$ |
114.4 |
|
|
$ |
114.7 |
|
|
|
30.1 |
|
|
|
2,450.7 |
|
|
|
2,174.6 |
|
|
$ |
52.5 |
|
|
$ |
52.6 |
|
|
|
7.7 |
|
|
|
535.4 |
|
|
|
630.5 |
|
|
CE |
|
|
48.8 |
|
|
|
55.4 |
|
|
|
13.7 |
|
|
|
1,088.3 |
|
|
|
1,009.8 |
|
|
|
7.8 |
|
|
|
8.9 |
|
|
|
1.4 |
|
|
|
101.1 |
|
|
|
109.1 |
|
|
UK |
|
|
6.6 |
|
|
|
7.4 |
|
|
|
2.5 |
|
|
|
206.0 |
|
|
|
182.8 |
|
|
|
4.3 |
|
|
|
4.8 |
|
|
|
0.9 |
|
|
|
64.1 |
|
|
|
72.0 |
|
|
Other (1) |
|
|
4.4 |
|
|
|
4.7 |
|
|
|
1.0 |
|
|
|
81.4 |
|
|
|
72.8 |
|
|
|
1.6 |
|
|
|
1.7 |
|
|
|
0.2 |
|
|
|
18.2 |
|
|
|
15.9 |
|
|
Total |
|
$ |
174.2 |
|
|
$ |
182.2 |
|
|
|
47.3 |
|
|
|
3,826.6 |
|
|
|
3,440.0 |
|
|
$ |
66.2 |
|
|
$ |
67.9 |
|
|
|
10.2 |
|
|
|
718.8 |
|
|
|
827.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change Q2 2022 vs. Q2 2021 |
|
|||||||||||||||||||||||||||||||||||||
|
North America |
|
|
(12.1 |
%) |
|
|
(11.9 |
%) |
|
|
(12.1 |
%) |
|
|
(6.8 |
%) |
|
|
(16.5 |
%) |
|
|
1.5 |
% |
|
|
1.7 |
% |
|
|
7.7 |
% |
|
|
1.1 |
% |
|
|
13.8 |
% |
|
CE |
|
|
(19.5 |
%) |
|
|
(8.6 |
%) |
|
|
(13.8 |
%) |
|
|
(12.1 |
%) |
|
|
(14.4 |
%) |
|
|
(10.8 |
%) |
|
|
1.4 |
% |
|
|
4.7 |
% |
|
|
(9.1 |
%) |
|
|
15.7 |
% |
|
UK |
|
|
(31.1 |
%) |
|
|
(23.3 |
%) |
|
|
(27.5 |
%) |
|
|
(22.9 |
%) |
|
|
(29.9 |
%) |
|
|
(6.7 |
%) |
|
|
3.9 |
% |
|
|
(9.4 |
%) |
|
|
(12.3 |
%) |
|
|
(5.9 |
%) |
|
Other (1) |
|
|
(10.6 |
%) |
|
|
(4.1 |
%) |
|
|
(1.3 |
%) |
|
|
(0.3 |
%) |
|
|
(2.6 |
%) |
|
|
(35.1 |
%) |
|
|
(30.4 |
%) |
|
|
(30.7 |
%) |
|
|
(28.2 |
%) |
|
|
(32.0 |
%) |
|
Total |
|
|
(15.2 |
%) |
|
|
(11.3 |
%) |
|
|
(13.4 |
%) |
|
|
(9.3 |
%) |
|
|
(16.5 |
%) |
|
|
(2.0 |
%) |
|
|
0.6 |
% |
|
|
4.3 |
% |
|
|
(2.8 |
%) |
|
|
10.6 |
% |
Note: Totals may not sum due to rounding.
|
(1) |
Represents Australia, New Zealand and emerging markets operations and franchise revenues. |
|
(2) |
The table below sets forth Workshops + Digital Fees, Workshops + Digital Paid Weeks and End of Period Workshops + Digital Subscribers attributable to former Digital 360 members who transitioned from our Digital business to our Workshops + Digital business during the second quarter of fiscal 2022. |
39
(in millions except as noted)
|
|
|
Q2 2022 |
|
|||||||||||||
|
|
|
Workshops + Digital Fees |
|
|
Workshops + Digital |
|
|
EOP Workshops |
|
|||||||
|
|
|
|
|
|
|
Constant |
|
|
Paid |
|
|
+ Digital |
|
|||
|
|
|
GAAP |
|
|
Currency |
|
|
Weeks |
|
|
Subscribers |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
North America |
|
$ |
3.7 |
|
|
$ |
3.7 |
|
|
|
0.7 |
|
|
|
113.0 |
|
|
CE |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.0 |
|
|
|
6.9 |
|
|
UK |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
7.3 |
|
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total Attributable to Former Digital 360 Members |
|
$ |
4.1 |
|
|
$ |
4.2 |
|
|
|
0.8 |
|
|
|
127.2 |
|
|
In connection with such transition, the Digital business experienced declines in Subscription Revenues, Paid Weeks and End of Period Subscribers. For the second quarter of fiscal 2022, adjusting Revenues for both our businesses to exclude $4.1 million, or $4.2 million on a constant currency basis, of Revenues attributable to former Digital 360 members who transitioned from our Digital business to our Workshops + Digital business, (i) Digital Subscription Revenues would have decreased 13.2%, or 9.3% on a constant currency basis, and (ii) Workshops + Digital Fees would have decreased 8.1%, or 5.6% on a constant currency basis, both versus the prior year period. For the second quarter of fiscal 2022, adjusting Paid Weeks for both our businesses to exclude 0.8 million of Paid Weeks attributable to such former Digital 360 members, (i) Digital Paid Weeks would have decreased 11.8% and (ii) Workshops + Digital Paid Weeks would have decreased 4.3%, both versus the prior year period. For the second quarter of fiscal 2022, adjusting End of Period Subscribers for both our businesses to exclude 127.2 thousand former Digital 360 members who transitioned from our Digital business to our Workshops + Digital business, (i) End of Period Digital Subscribers would have decreased 13.4% and (ii) End of Period Workshops + Digital Subscribers would have decreased 6.4%, both versus the prior year period. |
North America Performance
The decrease in North America revenues for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the second quarter of fiscal 2022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. Additionally, the transition of our former Digital 360 members to our Workshops + Digital business negatively impacted Digital Subscription Revenues in the second quarter of fiscal 2022. The decrease in North America Total Paid Weeks for the second quarter of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the second quarter of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021.
The decrease in North America product sales and other for the second quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
Continental Europe Performance
The decrease in Continental Europe revenues for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the second quarter of fiscal 2022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in Continental Europe Total Paid Weeks for the second quarter of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the second quarter of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021.
The decrease in Continental Europe product sales and other for the second quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
40
United Kingdom Performance
The decrease in UK revenues for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021 and the recruitment decline during the second quarter of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in UK Total Paid Weeks for the second quarter of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the second quarter of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021.
The decrease in UK product sales and other for the second quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
Other Performance
The decrease in Other revenues for the second quarter of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the second quarter of fiscal 2022 versus the prior year period was driven by both a decrease in Workshops + Digital Fees and a decrease in Digital Subscription Revenues. Subscription Revenues were negatively impacted by both the recruitment decline during the second quarter of fiscal 2022 as compared to the prior year period and the lower number of Total Incoming Subscribers at the beginning of the second quarter of fiscal 2022 versus the beginning of the second quarter of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated.
The decrease in Other product sales and other for the second quarter of fiscal 2022 versus the prior year period was driven primarily by a decrease in product sales.
41
RESULTS OF OPERATIONS
SIX MONTHS ENDED JULY 2, 2022 COMPARED TO THE SIX MONTHS ENDED JULY 3, 2021
The table below sets forth selected financial information for the first six months of fiscal 2022 from our consolidated statements of net income for the six months ended July 2, 2022 versus selected financial information for the first six months of fiscal 2021 from our consolidated statements of net income for the six months ended July 3, 2021.
Summary of Selected Financial Data
|
|
|
(In millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
For The Six Months Ended |
|
|
|
|
|
|
|
||||||||||||
|
|
|
July 2, 2022 |
|
|
July 3, 2021 |
|
|
Increase/ (Decrease) |
|
|
% Change |
|
|
% Change Constant Currency |
|
|
|||||
|
Revenues, net |
|
$ |
567.2 |
|
|
$ |
643.2 |
|
|
$ |
(76.0 |
) |
|
|
(11.8 |
%) |
|
|
(9.2 |
%) |
|
|
Cost of revenues |
|
|
224.2 |
|
|
|
263.7 |
|
|
|
(39.6 |
) |
|
|
(15.0 |
%) |
|
|
(13.2 |
%) |
|
|
Gross profit |
|
|
343.1 |
|
|
|
379.5 |
|
|
|
(36.4 |
) |
|
|
(9.6 |
%) |
|
|
(6.4 |
%) |
|
|
Gross Margin % |
|
|
60.5 |
% |
|
|
59.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
159.4 |
|
|
|
174.1 |
|
|
|
(14.7 |
) |
|
|
(8.4 |
%) |
|
|
(6.1 |
%) |
|
|
Selling, general & administrative expenses |
|
|
134.9 |
|
|
|
142.9 |
|
|
|
(8.0 |
) |
|
|
(5.6 |
%) |
|
|
(4.0 |
%) |
|
|
Franchise rights acquired and goodwill impairments |
|
|
26.4 |
|
|
|
— |
|
|
|
26.4 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
Operating income |
|
|
22.3 |
|
|
|
62.5 |
|
|
|
(40.2 |
) |
|
|
(64.3 |
%) |
|
|
(56.8 |
%) |
|
|
Operating Income Margin % |
|
|
3.9 |
% |
|
|
9.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
37.9 |
|
|
|
49.4 |
|
|
|
(11.5 |
) |
|
|
(23.3 |
%) |
|
|
(23.3 |
%) |
|
|
Other expense, net |
|
|
2.0 |
|
|
|
0.1 |
|
|
|
1.8 |
|
|
100.0 |
% |
* |
100.0 |
% |
* |
||
|
Early extinguishment of debt |
|
|
— |
|
|
|
29.2 |
|
|
|
(29.2 |
) |
|
|
(100.0 |
%) |
|
|
(100.0 |
%) |
|
|
Loss before income taxes |
|
|
(17.5 |
) |
|
|
(16.2 |
) |
|
|
(1.3 |
) |
|
|
(8.1 |
%) |
|
|
(20.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit from income taxes |
|
|
(4.7 |
) |
|
|
(6.9 |
) |
|
|
2.2 |
|
|
|
31.7 |
% |
|
|
57.0 |
% |
|
|
Net loss |
|
$ |
(12.9 |
) |
|
$ |
(9.4 |
) |
|
$ |
(3.5 |
) |
|
|
(37.4 |
%) |
|
|
(6.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
70.2 |
|
|
|
69.3 |
|
|
|
0.9 |
|
|
|
1.2 |
% |
|
|
1.2 |
% |
|
|
Diluted net loss per share |
|
$ |
(0.18 |
) |
|
$ |
(0.14 |
) |
|
$ |
(0.05 |
) |
|
|
(35.7 |
%) |
|
|
(4.8 |
%) |
|
Note: Totals may not sum due to rounding.
*Note: Percentage in excess of 100.0%.
42
Certain results for the first six months of fiscal 2022 are adjusted to exclude the impact of the $26.4 million of franchise rights acquired and goodwill impairments and the net impact of the $19.1 million of 2022 plan restructuring charges, the reversal of $0.3 million of 2021 plan restructuring charges and the reversal of $0.1 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the first six months ended July 2, 2022 which have been adjusted.
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Operating |
|
||
|
|
|
Gross |
|
|
Profit |
|
|
Operating |
|
|
Income |
|
||||
|
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
|
First Six Months of Fiscal 2022 |
|
$ |
343.1 |
|
|
|
60.5 |
% |
|
$ |
22.3 |
|
|
|
3.9 |
% |
|
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Franchise rights acquired and goodwill impairments |
|
|
— |
|
|
|
|
|
|
|
26.4 |
|
|
|
|
|
|
2022 plan restructuring charges |
|
|
4.5 |
|
|
|
|
|
|
|
19.1 |
|
|
|
|
|
|
2021 plan restructuring charges |
|
|
(0.5 |
) |
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
2020 plan restructuring charges |
|
|
(0.1 |
) |
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
Total adjustments (1) |
|
|
3.8 |
|
|
|
|
|
|
|
45.1 |
|
|
|
|
|
|
First Six Months of Fiscal 2022, as adjusted (1) |
|
$ |
346.9 |
|
|
|
61.2 |
% |
|
$ |
67.5 |
|
|
|
11.9 |
% |
Note: Totals may not sum due to rounding.
|
(1) |
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first six months of fiscal 2022 to exclude the impact of the $26.4 million ($21.3 million after tax) of franchise rights acquired and goodwill impairments and the net impact of the $19.1 million ($14.3 million after tax) of 2022 plan restructuring charges, the reversal of $0.3 million ($0.2 million after tax) of 2021 plan restructuring charges and the reversal of $0.1 million ($0.1 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Certain results for the first six months of fiscal 2021 are adjusted to exclude the net impact of the $11.6 million of 2021 plan restructuring charges and the reversal of $0.8 million of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above. The table below sets forth a reconciliation of certain of those components of our selected financial data for the first six months ended July 3, 2021 which have been adjusted.
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Operating |
|
||
|
|
|
Gross |
|
|
Profit |
|
|
Operating |
|
|
Income |
|
||||
|
(in millions except percentages) |
|
Profit |
|
|
Margin |
|
|
Income |
|
|
Margin |
|
||||
|
First Six Months of Fiscal 2021 |
|
$ |
379.5 |
|
|
|
59.0 |
% |
|
$ |
62.5 |
|
|
|
9.7 |
% |
|
Adjustments to reported amounts (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 plan restructuring charges |
|
|
10.8 |
|
|
|
|
|
|
|
11.6 |
|
|
|
|
|
|
2020 plan restructuring charges |
|
|
(0.6 |
) |
|
|
|
|
|
|
(0.8 |
) |
|
|
|
|
|
Total adjustments (1) |
|
|
10.2 |
|
|
|
|
|
|
|
10.7 |
|
|
|
|
|
|
First Six Months of Fiscal 2021, as adjusted (1) |
|
$ |
389.6 |
|
|
|
60.6 |
% |
|
$ |
73.2 |
|
|
|
11.4 |
% |
Note: Totals may not sum due to rounding.
|
(1) |
The “As adjusted” measure is a non-GAAP financial measure that adjusts the consolidated statements of net income for the first six months of fiscal 2021 to exclude the net impact of the $11.6 million ($8.7 million after tax) of 2021 plan restructuring charges and the reversal of $0.8 million ($0.6 million after tax) of 2020 plan restructuring charges. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Consolidated Results
Revenues
Revenues for the first six months of fiscal 2022 were $567.2 million, a decrease of $76.0 million, or 11.8%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted our revenues in the first six months of fiscal 2022 by $17.0 million, revenues for the first six months of fiscal 2022 would have decreased 9.2% versus the prior year period. This decrease was driven primarily by lower Subscription Revenues reflecting lower sign-ups primarily due to worsened consumer sentiment and our PersonalPoints program not resonating with consumers to the extent anticipated. This worsened consumer sentiment was due in part to the evolution of the COVID-19 pandemic as well as the likely impact of certain macro factors including increasing inflation, social and political unrest and challenged economic growth. See “—Segment Results” for additional details on revenues.
43
Cost of Revenues
Total cost of revenues for the first six months of fiscal 2022 decreased $39.6 million, or 15.0%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which decreased cost of revenues in the first six months of fiscal 2022 by $4.9 million, cost of revenues for the first six months of fiscal 2022 would have decreased 13.2% versus the prior year period. Excluding the net impact of the $3.8 million of restructuring charges in the first six months of fiscal 2022 and the net impact of the $10.2 million of restructuring charges in the first six months of fiscal 2021, total cost of revenues for the first six months of fiscal 2022 would have decreased by 13.1%, or 11.2% on a constant currency basis, versus the prior year period.
Gross Profit
Gross profit for the first six months of fiscal 2022 decreased $36.4 million, or 9.6%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted gross profit in the first six months of fiscal 2022 by $12.2 million, gross profit for the first six months of fiscal 2022 would have decreased 6.4% versus the prior year period. Excluding the net impact of the $3.8 million of restructuring charges in the first six months of fiscal 2022 and the net impact of the $10.2 million of restructuring charges in the first six months of fiscal 2021, gross profit for the first six months of fiscal 2022 would have decreased by 11.0%, or 7.8% on a constant currency basis, versus the prior year period primarily due to the decrease in revenues. Gross margin for the first six months of fiscal 2022 increased to 60.5% versus 59.0% for the first six months of fiscal 2021. Excluding the impact of foreign currency, gross margin in the first six months of fiscal 2022 would have increased 1.8% to 60.8% versus the prior year period. Excluding the net impact of restructuring charges in the first six months of fiscal 2022 and the net impact of restructuring charges in the first six months of fiscal 2021, gross margin for the first six months of fiscal 2022 would have increased 0.6% to 61.2% versus the prior year period. Excluding the impact of foreign currency, the net impact of restructuring charges in the first six months of fiscal 2022 and the net impact of restructuring charges in the first six months of fiscal 2021, gross margin for the first six months of fiscal 2022 would have increased 0.9% to 61.5% versus the prior year period. The gross margin increase was driven primarily by margin expansion in the Workshops + Digital business resulting from a more efficient studio footprint and a reduction in labor costs.
Marketing
Marketing expenses for the first six months of fiscal 2022 decreased $14.7 million, or 8.4%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which decreased marketing expenses in the first six months of fiscal 2022 by $4.0 million, marketing expenses for the first six months of fiscal 2022 would have decreased 6.1% versus the prior year period. This decrease in marketing expenses was primarily due to a decline in TV media. Marketing expenses as a percentage of revenue for the first six months of fiscal 2022 increased to 28.1% from 27.1% for the first six months of fiscal 2021.
Selling, General and Administrative
Selling, general and administrative expenses for the first six months of fiscal 2022 decreased $8.0 million, or 5.6%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which decreased selling, general and administrative expenses in the first six months of fiscal 2022 by $2.3 million, selling, general and administrative expenses for the first six months of fiscal 2022 would have decreased 4.0% versus the prior year period. Excluding the net impact of the $14.9 million of restructuring charges in the first six months of fiscal 2022 and the net impact of the $0.6 million of restructuring charges in the first six months of fiscal 2021, selling, general and administrative expenses for the first six months of fiscal 2022 would have decreased by 15.7%, or 14.1% on a constant currency basis, versus the prior year period. This decrease in selling, general and administrative expenses was primarily due to lower stock compensation expense and lower bonus expense driven by a change in timing of payment and a reduction in headcount. Selling, general and administrative expenses as a percentage of revenue for the first six months of fiscal 2022 increased to 23.8% from 22.2% for the first six months of fiscal 2021. Excluding the net impact of restructuring charges in the first six months of fiscal 2022 and the net impact of restructuring charges in the first six months of fiscal 2021, selling, general and administrative expenses as a percentage of revenue for the first six months of fiscal 2022 would have decreased by 1.0%, or 1.2% on a constant currency basis, versus the prior year period.
Impairments
In performing our annual impairment analysis as of May 8, 2022, we determined that the carrying amounts of our Canada and New Zealand franchise rights acquired with indefinite lived units of account exceeded their respective fair values and, as a result, we recorded impairment charges for our Canada and New Zealand units of account of $24.5 million and $0.8 million, respectively, in the second quarter of fiscal 2022. In addition, we determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of our strategic plan. As a result of this determination, we recorded an impairment charge of $1.1 million in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo.
44
Operating Income
Operating income for the first six months of fiscal 2022 decreased $40.2 million, or 64.3%, versus the first six months of fiscal 2021. Excluding the impact of foreign currency, which negatively impacted operating income in the first six months of fiscal 2022 by $4.7 million, operating income for the first six months of fiscal 2022 would have decreased 56.8% versus the prior year period. Excluding the impact of the $26.4 million of franchise rights acquired and goodwill impairments in the first six months of fiscal 2022, the net impact of the $18.7 million of restructuring charges in the first six months of fiscal 2022 and the net impact of the $10.7 million of restructuring charges in the first six months of fiscal 2021, operating income for the first six months of fiscal 2022 would have decreased by 7.9%, or increased by 0.2% on a constant currency basis, versus the prior year period. Operating income margin for the first six months of fiscal 2022 decreased to 3.9% versus 9.7% for the first six months of fiscal 2021. Excluding the impact of the franchise rights acquired and goodwill impairments in the first six months of fiscal 2022, the net impact of restructuring charges in the first six months of fiscal 2022 and the net impact of restructuring charges in the first six months of fiscal 2021, operating income margin for the first six months of fiscal 2022 would have increased by 0.5%, or 1.2% on a constant currency basis, versus the prior year period. This increase in operating income margin was driven primarily by a decrease in selling, general and administrative expenses as a percentage of revenue and an increase in gross margin, partially offset by an increase in marketing expenses as a percentage of revenue, versus the prior year period.
Interest Expense
Interest expense for the first six months of fiscal 2022 decreased $11.5 million, or 23.3%, versus the first six months of fiscal 2021. The decrease in interest expense was driven primarily by lower interest rates under our Term Loan Facility and on our Senior Secured Notes as a result of our April 2021 debt refinancing. The effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first six months of fiscal 2022 and the first six months of fiscal 2021 and excluding the impact of our interest rate swaps then in effect, decreased to 4.63% per annum at the end of the first six months of fiscal 2022 from 5.66% per annum at the end of the first six months of fiscal 2021. Including the impact of our interest rate swaps then in effect, the effective interest rate on our debt, based on interest incurred (which includes amortization of our deferred financing costs and debt discount) and our average borrowings during the first six months of fiscal 2022 and the first six months of fiscal 2021, decreased to 5.22% per annum at the end of the first six months of fiscal 2022 from 6.43% per annum at the end of the first six months of fiscal 2021. See “—Liquidity and Capital Resources—Long-Term Debt” for additional details regarding our debt, including interest rates and payments thereon. For additional details on our interest rate swaps, see “Item 3. Quantitative and Qualitative Disclosures about Market Risk” in Part I of this Quarterly Report on Form 10-Q.
Other Expense, Net
Other expense, net, which consists primarily of the impact of foreign currency on intercompany transactions, increased by $1.8 million for the first six months of fiscal 2022 to $2.0 million of expense as compared to $0.1 million of expense for the first six months of fiscal 2021.
Early Extinguishment of Debt
In the second quarter of fiscal 2021, we wrote-off $29.2 million of fees in connection with our April 2021 debt refinancing that we recorded as an early extinguishment of debt charge, comprised of $12.9 million of a prepayment penalty on the Discharged Senior Notes, $9.0 million of financing fees and $7.2 million of pre-existing deferred financing fees and debt discount. For additional details on this refinancing, see “—Liquidity and Capital Resources—Long-Term Debt”.
Tax
Our effective tax rate for the first six months of fiscal 2022 was 26.7% as compared to 42.3% for the first six months of fiscal 2021. The tax benefit for the first six months of fiscal 2022 was primarily driven by a tax benefit recorded for out-of-period income tax adjustments, which was partially offset by tax expense related to tax shortfalls from stock compensation. For the first six months of fiscal 2022, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to tax benefits related to FDII and to out-of-period income tax adjustments, partially offset by state income tax expense, tax expense from income earned in foreign jurisdictions and tax expense related to tax shortfalls from stock compensation. The tax expense for the first six months of fiscal 2021 was impacted by tax windfalls from stock compensation. For the first six months of fiscal 2021, the difference between the U.S. federal statutory tax rate and our consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII.
45
Net Loss and Diluted Net Loss Per Share
Net loss for the first six months of fiscal 2022 was $12.9 million, which increased $3.5 million, or 37.4%, from the net loss for the first six months of fiscal 2021 of $9.4 million. Excluding the impact of foreign currency, which negatively impacted net loss in the first six months of fiscal 2022 by $2.9 million, net loss for the first six months of fiscal 2022 would have increased 6.1% from the prior year period. Net loss for the first six months of fiscal 2022 included a $21.3 million impact from franchise rights acquired and goodwill impairments and a $14.0 million net impact from restructuring charges. Net loss for the first six months of fiscal 2021 included a $21.8 million impact from the write-off of fees related to our April 2021 debt refinancing and an $8.0 million net impact from restructuring charges.
Diluted net loss per share for the first six months of fiscal 2022 was $0.18 compared to diluted net loss per share of $0.14 for the first six months of fiscal 2021. Diluted net loss per share for the first six months of fiscal 2022 included a $0.30 impact from franchise rights acquired and goodwill impairments and a $0.20 net impact from restructuring charges. Diluted net loss per share for the first six months of fiscal 2021 included a $0.31 impact from the write-off of fees related to our April 2021 debt refinancing and a $0.12 net impact from restructuring charges.
46
Segment Results
Metrics and Business Trends
The following tables set forth key metrics by reportable segment for the first six months of fiscal 2022 and the percentage change in those metrics versus the prior year period:
(in millions except percentages and as noted)
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|
|
|
|
|
|
|
|
|
First Half of Fiscal 2022 |
|
|||||||||||||||||||||||||||||||||
|
|
|
GAAP |
|
|
Constant Currency |
|
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||||||||||||||||||
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|
Product |
|
|
|
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|
|
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|
|
Product |
|
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|
|
|
|
Total |
|
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|
|
|
|
|||
|
|
|
Subscription |
|
|
Sales & |
|
|
Total |
|
|
Subscription |
|
|
Sales & |
|
|
Total |
|
|
Paid |
|
|
Incoming |
|
|
EOP |
|
|||||||||
|
|
|
Revenues |
|
|
Other |
|
|
Revenues |
|
|
Revenues |
|
|
Other |
|
|
Revenues |
|
|
Weeks |
|
|
Subscribers |
|
|
Subscribers |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|||||
|
North America |
|
$ |
343.2 |
|
|
$ |
49.1 |
|
|
$ |
392.3 |
|
|
$ |
343.6 |
|
|
$ |
49.2 |
|
|
$ |
392.8 |
|
|
|
76.4 |
|
|
|
2,734.9 |
|
|
|
2,805.1 |
|
|
CE |
|
|
118.3 |
|
|
|
14.3 |
|
|
|
132.6 |
|
|
|
130.6 |
|
|
|
15.7 |
|
|
|
146.4 |
|
|
|
30.5 |
|
|
|
1,094.1 |
|
|
|
1,118.9 |
|
|
UK |
|
|
23.1 |
|
|
|
4.1 |
|
|
|
27.2 |
|
|
|
24.7 |
|
|
|
4.3 |
|
|
|
29.1 |
|
|
|
6.9 |
|
|
|
245.0 |
|
|
|
254.8 |
|
|
Other (1) |
|
|
12.8 |
|
|
|
2.3 |
|
|
|
15.0 |
|
|
|
13.6 |
|
|
|
2.4 |
|
|
|
16.0 |
|
|
|
2.5 |
|
|
|
94.5 |
|
|
|
88.7 |
|
|
Total |
|
$ |
497.4 |
|
|
$ |
69.8 |
|
|
$ |
567.2 |
|
|
$ |
512.6 |
|
|
$ |
71.7 |
|
|
$ |
584.2 |
|
|
|
116.4 |
|
|
|
4,168.6 |
|
|
|
4,267.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change First Half of Fiscal 2022 vs. First Half of Fiscal 2021 |
|
|||||||||||||||||||||||||||||||||
|
North America |
|
|
(7.0 |
%) |
|
|
(18.1 |
%) |
|
|
(8.5 |
%) |
|
|
(6.9 |
%) |
|
|
(18.0 |
%) |
|
|
(8.4 |
%) |
|
|
(6.2 |
%) |
|
|
(3.1 |
%) |
|
|
(11.2 |
%) |
|
CE |
|
|
(15.0 |
%) |
|
|
(30.5 |
%) |
|
|
(17.0 |
%) |
|
|
(6.1 |
%) |
|
|
(23.8 |
%) |
|
|
(8.4 |
%) |
|
|
(11.1 |
%) |
|
|
(7.2 |
%) |
|
|
(12.2 |
%) |
|
UK |
|
|
(20.7 |
%) |
|
|
(41.0 |
%) |
|
|
(24.6 |
%) |
|
|
(15.2 |
%) |
|
|
(37.2 |
%) |
|
|
(19.4 |
%) |
|
|
(22.4 |
%) |
|
|
(24.3 |
%) |
|
|
(24.4 |
%) |
|
Other (1) |
|
|
(17.1 |
%) |
|
|
(22.3 |
%) |
|
|
(17.9 |
%) |
|
|
(11.7 |
%) |
|
|
(18.4 |
%) |
|
|
(12.8 |
%) |
|
|
(7.4 |
%) |
|
|
(3.2 |
%) |
|
|
(9.6 |
%) |
|
Total |
|
|
(10.0 |
%) |
|
|
(22.8 |
%) |
|
|
(11.8 |
%) |
|
|
(7.3 |
%) |
|
|
(20.8 |
%) |
|
|
(9.2 |
%) |
|
|
(8.7 |
%) |
|
|
(5.8 |
%) |
|
|
(12.3 |
%) |
Note: Totals may not sum due to rounding.
|
(1) |
Represents Australia, New Zealand and emerging markets operations and franchise revenues. |
(in millions except percentages and as noted)
|
|
|
First Half of Fiscal 2022 |
|
|||||||||||||||||||||||||||||||||||||
|
|
|
Digital Subscription Revenues (2) |
|
|
Digital |
|
|
Incoming |
|
|
EOP |
|
|
Workshops + Digital Fees (2) |
|
|
Workshops + Digital |
|
|
Incoming Workshops |
|
|
EOP Workshops |
|
||||||||||||||||
|
|
|
|
|
|
|
Constant |
|
|
Paid |
|
|
Digital |
|
|
Digital |
|
|
|
|
|
|
Constant |
|
|
Paid |
|
|
+ Digital |
|
|
+ Digital |
|
||||||||
|
|
|
GAAP |
|
|
Currency |
|
|
Weeks |
(2) |
|
Subscribers |
|
|
Subscribers |
(2) |
|
GAAP |
|
|
Currency |
|
|
Weeks (2) |
|
|
Subscribers |
|
|
Subscribers |
(2) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
||||||||||
|
North America |
|
$ |
239.8 |
|
|
$ |
240.1 |
|
|
|
61.5 |
|
|
|
2,186.9 |
|
|
|
2,174.6 |
|
|
$ |
103.4 |
|
|
$ |
103.5 |
|
|
|
15.0 |
|
|
|
548.0 |
|
|
|
630.5 |
|
|
CE |
|
|
102.3 |
|
|
|
112.9 |
|
|
|
27.8 |
|
|
|
998.5 |
|
|
|
1,009.8 |
|
|
|
16.0 |
|
|
|
17.7 |
|
|
|
2.7 |
|
|
|
95.7 |
|
|
|
109.1 |
|
|
UK |
|
|
14.4 |
|
|
|
15.4 |
|
|
|
5.1 |
|
|
|
179.7 |
|
|
|
182.8 |
|
|
|
8.7 |
|
|
|
9.3 |
|
|
|
1.8 |
|
|
|
65.3 |
|
|
|
72.0 |
|
|
Other (1) |
|
|
9.3 |
|
|
|
9.9 |
|
|
|
2.1 |
|
|
|
76.0 |
|
|
|
72.8 |
|
|
|
3.5 |
|
|
|
3.7 |
|
|
|
0.5 |
|
|
|
18.5 |
|
|
|
15.9 |
|
|
Total |
|
$ |
365.7 |
|
|
$ |
378.3 |
|
|
|
96.5 |
|
|
|
3,441.1 |
|
|
|
3,440.0 |
|
|
$ |
131.7 |
|
|
$ |
134.3 |
|
|
|
19.9 |
|
|
|
727.4 |
|
|
|
827.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change First Half of Fiscal 2022 vs. First Half of Fiscal 2021 |
|
|||||||||||||||||||||||||||||||||||||
|
North America |
|
|
(8.6 |
%) |
|
|
(8.5 |
%) |
|
|
(9.1 |
%) |
|
|
(6.3 |
%) |
|
|
(16.5 |
%) |
|
|
(3.0 |
%) |
|
|
(2.9 |
%) |
|
|
8.3 |
% |
|
|
12.3 |
% |
|
|
13.8 |
% |
|
CE |
|
|
(14.4 |
%) |
|
|
(5.5 |
%) |
|
|
(11.6 |
%) |
|
|
(5.8 |
%) |
|
|
(14.4 |
%) |
|
|
(18.6 |
%) |
|
|
(10.0 |
%) |
|
|
(4.9 |
%) |
|
|
(20.1 |
%) |
|
|
15.7 |
% |
|
UK |
|
|
(25.7 |
%) |
|
|
(20.7 |
%) |
|
|
(25.3 |
%) |
|
|
(23.5 |
%) |
|
|
(29.9 |
%) |
|
|
(10.8 |
%) |
|
|
(4.4 |
%) |
|
|
(12.4 |
%) |
|
|
(26.2 |
%) |
|
|
(5.9 |
%) |
|
Other (1) |
|
|
(8.7 |
%) |
|
|
(2.7 |
%) |
|
|
(0.7 |
%) |
|
|
2.8 |
% |
|
|
(2.6 |
%) |
|
|
(33.2 |
%) |
|
|
(29.0 |
%) |
|
|
(28.7 |
%) |
|
|
(21.9 |
%) |
|
|
(32.0 |
%) |
|
Total |
|
|
(11.1 |
%) |
|
|
(8.1 |
%) |
|
|
(10.7 |
%) |
|
|
(7.1 |
%) |
|
|
(16.5 |
%) |
|
|
(6.8 |
%) |
|
|
(4.9 |
%) |
|
|
2.9 |
% |
|
|
1.0 |
% |
|
|
10.6 |
% |
Note: Totals may not sum due to rounding.
|
(1) |
Represents Australia, New Zealand and emerging markets operations and franchise revenues. |
|
(2) |
The table below sets forth Workshops + Digital Fees, Workshops + Digital Paid Weeks and End of Period Workshops + Digital Subscribers attributable to former Digital 360 members who transitioned from our Digital business to our Workshops + Digital business during the first half of fiscal 2022. |
47
(in millions except as noted)
|
|
|
First Half of Fiscal 2022 |
|
|||||||||||||
|
|
|
Workshops + Digital Fees |
|
|
Workshops + Digital |
|
|
EOP Workshops |
|
|||||||
|
|
|
|
|
|
|
Constant |
|
|
Paid |
|
|
+ Digital |
|
|||
|
|
|
GAAP |
|
|
Currency |
|
|
Weeks |
|
|
Subscribers |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
North America |
|
$ |
3.7 |
|
|
$ |
3.7 |
|
|
|
0.7 |
|
|
|
113.0 |
|
|
CE |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
0.0 |
|
|
|
6.9 |
|
|
UK |
|
|
0.2 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
7.3 |
|
|
Other |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Total Attributable to Former Digital 360 Members |
|
$ |
4.1 |
|
|
$ |
4.2 |
|
|
|
0.8 |
|
|
|
127.2 |
|
|
|
In connection with such transition, the Digital business experienced declines in Subscription Revenues, Paid Weeks and End of Period Subscribers. For the first half of fiscal 2022, adjusting Revenues for both our businesses to exclude $4.1 million, or $4.2 million on a constant currency basis, of Revenues attributable to former Digital 360 members who transitioned from our Digital business to our Workshops + Digital business, (i) Digital Subscription Revenues would have decreased 10.1%, or 7.0% on a constant currency basis, and (ii) Workshops + Digital Fees would have decreased 9.7%, or 7.9% on a constant currency basis, both versus the prior year period. For the first half of fiscal 2022, adjusting Paid Weeks for both our businesses to exclude 0.8 million of Paid Weeks attributable to such former Digital 360 members, (i) Digital Paid Weeks would have decreased 9.9% and (ii) Workshops + Digital Paid Weeks would have decreased 1.4%, both versus the prior year period. For the first half of fiscal 2022, adjusting End of Period Subscribers for both our businesses to exclude 127.2 thousand former Digital 360 members who transitioned from our Digital business to our Workshops + Digital business, (i) End of Period Digital Subscribers would have decreased 13.4% and (ii) End of Period Workshops + Digital Subscribers would have decreased 6.4%, both versus the prior year period. |
North America Performance
The decrease in North America revenues for the first six months of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the first six months of fiscal 2022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. Additionally, the transition of our former Digital 360 members to our Workshops + Digital business negatively impacted Digital Subscription Revenues in the first six months of fiscal 2022. The decrease in North America Total Paid Weeks for the first six months of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the first six months of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021.
The decrease in North America product sales and other for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
Continental Europe Performance
The decrease in Continental Europe revenues for the first six months of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the recruitment decline during the first six months of fiscal 2022 as compared to the prior year period and the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in Continental Europe Total Paid Weeks for the first six months of fiscal 2022 versus the prior year period was driven primarily by both lower recruitments for the first six months of fiscal 2022 versus the prior year period and the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021.
The decrease in Continental Europe product sales and other for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
48
United Kingdom Performance
The decrease in UK revenues for the first six months of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in Digital Subscription Revenues. Digital Subscription Revenues were negatively impacted by both the lower number of Incoming Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021 and the recruitment decline during the first six months of fiscal 2022 as compared to the prior year period. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated. The decrease in UK Total Paid Weeks for the first six months of fiscal 2022 versus the prior year period was driven primarily by both the lower number of Total Incoming Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021 and lower recruitments for the first six months of fiscal 2022 versus the prior year period.
The decrease in UK product sales and other for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in e-commerce product sales.
Other Performance
The decrease in Other revenues for the first six months of fiscal 2022 versus the prior year period was driven by a decrease in Subscription Revenues and, to a lesser extent, a decrease in product sales and other. The decrease in Subscription Revenues for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in Workshops + Digital Fees. Workshops + Digital Fees were negatively impacted by both the recruitment decline during the first six months of fiscal 2022 as compared to the prior year period and the lower number of Incoming Workshops + Digital Subscribers at the beginning of fiscal 2022 versus the beginning of fiscal 2021. This decline in recruitments was driven primarily by worsened consumer sentiment in the current environment and our PersonalPoints program not resonating with consumers to the extent anticipated.
The decrease in Other product sales and other for the first six months of fiscal 2022 versus the prior year period was driven primarily by a decrease in product sales and franchise commissions.
49
LIQUIDITY AND CAPITAL RESOURCES
Cash flows provided by operating activities have historically supplied, and are expected to continue to supply, us with our primary source of liquidity. We use these cash flows, supplemented with long-term debt and short-term borrowings, to fund our operations and global strategic initiatives, pay down debt and engage in selective acquisitions. We currently believe that cash generated by operations, our cash on hand of approximately $148.6 million at July 2, 2022, our $173.9 million of availability under our Revolving Credit Facility (as defined below) at July 2, 2022 and our continued cost focus will provide us with sufficient liquidity to meet our obligations for the short- and long-term. In addition, if necessary, we have the flexibility to delay investments or reduce marketing spend.
We continue to proactively manage our liquidity so we can maintain flexibility to fund investments in our business, honor our long-term debt obligations, and respond to evolving business and consumer conditions. To increase our flexibility and reduce our cash interest payments, we refinanced our then-existing credit facilities and then-existing senior notes in April 2021. See “—Long-Term Debt” for additional details on this refinancing. Additionally, we instituted a number of measures throughout our operations to mitigate expenses and reduce costs as well as ensure liquidity and the availability of our Revolving Credit Facility. The evolving nature, and uncertain economic impact, of the current demand environment may impact our liquidity going forward. To the extent that we do not successfully manage our costs, our liquidity and financial results, as well as our ability to access our Revolving Credit Facility, may be adversely affected.
As market conditions warrant, we may, from time to time, seek to purchase our outstanding debt securities or loans, including the Senior Secured Notes and borrowings under the Credit Facilities (each as defined below). Such transactions could be privately negotiated or open market transactions, pursuant to tender offers or otherwise. Subject to any applicable limitations contained in the agreements governing, or terms of, our indebtedness, any such purchases made by us may be funded by the use of cash on our balance sheet, the incurrence of new secured or unsecured debt, the issuance of our equity or the sale of assets. The amounts involved in any such purchase transactions, individually or in the aggregate, may be material. Any such purchases may equate to a substantial amount of a particular class or series of debt, which may reduce the trading liquidity of such class or series.
Balance Sheet Working Capital
The following table sets forth certain relevant measures of our balance sheet working capital deficit, excluding cash and cash equivalents and current portion of long-term debt at:
|
|
|
July 2, |
|
|
January 1, |
|
|
Increase/ |
|
|||
|
|
|
2022 |
|
|
2022 |
|
|
(Decrease) |
|
|||
|
|
|
(in millions) |
|
|||||||||
|
Total current assets |
|
$ |
265.5 |
|
|
$ |
271.2 |
|
|
$ |
(5.7 |
) |
|
Total current liabilities |
|
|
208.2 |
|
|
|
229.1 |
|
|
|
(20.9 |
) |
|
Working capital surplus |
|
|
57.2 |
|
|
|
42.0 |
|
|
|
(15.2 |
) |
|
Cash and cash equivalents |
|
|
148.6 |
|
|
|
153.8 |
|
|
|
(5.2 |
) |
|
Current portion of long-term debt |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Working capital deficit, excluding cash and cash equivalents and current portion of long-term debt |
|
$ |
(91.4 |
) |
|
$ |
(111.8 |
) |
|
$ |
(20.4 |
) |
Note: Totals may not sum due to rounding.
50
The following table sets forth a summary of the primary factors contributing to the $20.4 million decrease in our working capital deficit, excluding cash and cash equivalents and current portion of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact to |
|
|
|
|
|
July 2, |
|
|
January 1, |
|
|
Increase/ |
|
|
Working |
|
||||
|
|
|
2022 |
|
|
2022 |
|
|
(Decrease) |
|
|
Capital Deficit |
|
||||
|
|
|
(in millions) |
|
|||||||||||||
|
Derivative (receivable) payable, net |
|
$ |
(2.5 |
) |
|
$ |
14.7 |
|
|
$ |
(17.2 |
) |
|
$ |
(17.2 |
) |
|
Operational liabilities and other, net of assets |
|
$ |
44.5 |
|
|
$ |
54.7 |
|
|
$ |
(10.2 |
) |
|
$ |
(10.2 |
) |
|
Portion of operating lease liabilities due within one year |
|
$ |
18.4 |
|
|
$ |
20.3 |
|
|
$ |
(1.9 |
) |
|
$ |
(1.9 |
) |
|
Income taxes payable |
|
$ |
0.9 |
|
|
$ |
1.7 |
|
|
$ |
(0.8 |
) |
|
$ |
(0.8 |
) |
|
Accrued interest |
|
$ |
5.3 |
|
|
$ |
5.1 |
|
|
$ |
0.2 |
|
|
$ |
0.2 |
|
|
Deferred revenue |
|
$ |
47.6 |
|
|
$ |
45.9 |
|
|
$ |
1.8 |
|
|
$ |
1.8 |
|
|
Prepaid income taxes |
|
$ |
22.8 |
|
|
$ |
30.5 |
|
|
$ |
(7.7 |
) |
|
$ |
7.7 |
|
|
Working capital deficit change, excluding cash and cash equivalents and current portion of long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(20.4 |
) |
Note: Totals may not sum due to rounding.
The change in derivative (receivable) payable, net was due to a change in fair value driven by the change in interest rates. The decrease in operational liabilities and other, net of assets, which includes accrued salaries and wages, was driven primarily by a decrease in accrued liabilities and an increase in receivables, partially offset by an increase in account payable, all due to seasonality and timing. The decrease in prepaid income taxes was primarily due to the timing of tax payments.
Cash Flows
The following table sets forth a summary of our cash flows for the six months ended:
|
|
|
July 2, |
|
|
July 3, |
|
||
|
|
|
2022 |
|
|
2021 |
|
||
|
|
|
(in millions) |
|
|||||
|
Net cash provided by operating activities |
|
$ |
26.4 |
|
|
$ |
38.3 |
|
|
Net cash used for investing activities |
|
$ |
(23.5 |
) |
|
$ |
(30.8 |
) |
|
Net cash used for financing activities |
|
$ |
(2.0 |
) |
|
$ |
(46.1 |
) |
Operating Activities
First Six Months of Fiscal 2022
Cash flows provided by operating activities of $26.4 million for the first six months of fiscal 2022 reflected a decrease of $11.8 million from $38.3 million of cash flows provided by operating activities for the first six months of fiscal 2021. The decrease in cash provided by operating activities was primarily the result of a decrease in non-cash add-back adjustments, partially offset by a decrease in cash used for operating assets and liabilities in the first six months of fiscal 2022 as compared to the prior year period.
First Six Months of Fiscal 2021
Cash flows provided by operating activities of $38.3 million for the first six months of fiscal 2021 reflected a decrease of $9.3 million from $47.5 million of cash flows provided by operating activities for the first six months of fiscal 2020. The decrease in cash provided by operating activities was primarily the result of a change in net (loss) income attributable to the Company of $17.3 million in the first six months of fiscal 2021 as compared to the prior year period.
Investing Activities
First Six Months of Fiscal 2022
Net cash used for investing activities totaled $23.5 million for the first six months of fiscal 2022, a decrease of $7.4 million as compared to the first six months of fiscal 2021. This decrease was primarily attributable to a decrease in cash paid for acquisitions in the first six months of fiscal 2022 as compared to the prior year period.
51
First Six Months of Fiscal 2021
Net cash used for investing activities totaled $30.8 million for the first six months of fiscal 2021, a decrease of $8.4 million as compared to the first six months of fiscal 2020. This decrease was primarily attributable to lower capital expenditures, partially offset by an increase in cash paid for acquisitions, in the first six months of fiscal 2021 as compared to the prior year period.
Financing Activities
First Six Months of Fiscal 2022
Net cash used for financing activities totaled $2.0 million for the first six months of fiscal 2022, a decrease of $44.2 million as compared to the first six months of fiscal 2021. This decrease was primarily attributable to the aggregate of $37.3 million of prepayment penalties, financing costs and debt discount in connection with the April 2021 debt refinancing in the first six months of fiscal 2021. See “—Long-Term Debt” for additional details on debt.
First Six Months of Fiscal 2021
Net cash used for financing activities totaled $46.1 million for the first six months of fiscal 2021 primarily due to the April 13, 2021 payment in full of approximately $1.2 billion of borrowings under our then-existing credit facilities and redemption of all of the $300.0 million aggregate principal amount of our then-existing senior notes, as well as the payment in aggregate of $37.3 million of prepayment penalties, financing costs and debt discount in connection with the April 2021 debt refinancing. In addition, there was $19.3 million used for scheduled debt repayments under our then-existing term loan facility in the first quarter of fiscal 2021. These payments were partially offset by the proceeds received of $1,000.0 million in an aggregate principal amount of borrowings under our Term Loan Facility (as defined below) and proceeds received from the issuance of $500.0 million in aggregate principal amount of our Senior Secured Notes (as defined below) in connection with our April 2021 debt refinancing. See “—Long-Term Debt” for additional details on debt.
Long-Term Debt
We currently plan to meet our long-term debt obligations by using cash flows provided by operating activities and opportunistically using other means to repay or refinance our obligations as we determine appropriate.
The following schedule sets forth our long-term debt obligations at July 2, 2022:
Long-Term Debt
At July 2, 2022
(Balances in millions)
|
|
|
July 2, 2022 |
|
|
|
Term Loan Facility due April 13, 2028 |
|
$ |
945.0 |
|
|
Senior Secured Notes due April 15, 2029 |
|
|
500.0 |
|
|
Total |
|
|
1,445.0 |
|
|
Less: Current portion |
|
|
— |
|
|
Unamortized deferred financing costs |
|
|
11.6 |
|
|
Unamortized debt discount |
|
|
13.2 |
|
|
Total long-term debt |
|
$ |
1,420.2 |
|
Note: Totals may not sum due to rounding.
52
On April 13, 2021, we (1) repaid in full approximately $1.2 billion in aggregate principal amount of senior secured tranche B term loans due in 2024 under our then-existing credit facilities and (2) redeemed all of the $300.0 million in aggregate principal amount of our then-outstanding 8.625% Senior Notes due in 2025, or the Discharged Senior Notes. On April 13, 2021, our then-existing credit facilities included a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 with $175.0 million in an aggregate principal amount of commitments. There were no outstanding borrowings under such revolving credit facility on that date. We funded such repayment of loans and redemption of notes with cash on hand as well as with proceeds received from approximately $1,000.0 million in an aggregate principal amount of borrowings under our new credit facilities (as amended from time to time, referred to herein as the Credit Facilities) and proceeds received from the issuance of $500.0 million in aggregate principal amount of 4.500% Senior Secured Notes due 2029, or the Senior Secured Notes, each as described below. These transactions are collectively referred to herein as the April 2021 debt refinancing. During the second quarter of fiscal 2021, we incurred fees of $37.9 million (which included $12.9 million of a prepayment penalty on the Discharged Senior Notes and $5.0 million of a debt discount on our Term Loan Facility (as defined below)) in connection with our April 2021 debt refinancing. In addition, we recorded a loss on early extinguishment of debt of $29.2 million in connection thereto. This early extinguishment of debt charge was comprised of $12.9 million of a prepayment penalty on the Discharged Senior Notes, $9.0 million of financing fees paid in connection with our April 2021 debt refinancing and the write-off of $7.2 million of pre-existing deferred financing fees and debt discount.
Credit Facilities
The Credit Facilities were issued under a credit agreement, dated April 13, 2021 or, as amended from time to time, the Credit Agreement, among the Company, as borrower, the lenders party thereto, and Bank of America, N.A., or Bank of America, as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000.0 million in aggregate principal amount of senior secured tranche B term loans due in 2028, or the Term Loan Facility, and (2) $175.0 million in an aggregate principal amount of commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026, or the Revolving Credit Facility.
In December 2021, we made voluntary prepayments at par in an aggregate amount of $52.5 million in respect of our outstanding term loans under the Term Loan Facility. As a result of these prepayments, we wrote off a debt discount and deferred financing fees of $1.2 million in the aggregate in the fourth quarter of fiscal 2021.
As of July 2, 2022, we had $945.0 million in an aggregate principal amount of loans outstanding under our Credit Facilities, with $173.9 million of availability and $1.1 million in issued but undrawn letters of credit outstanding under the Revolving Credit Facility. There were no outstanding borrowings under the Revolving Credit Facility as of July 2, 2022.
All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of our current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
|
|
• |
a pledge of 100% of the equity interests directly held by the Company and each guarantor in any wholly-owned material subsidiary of the Company or any guarantor (which pledge, in the case of any non-U.S. subsidiary of a U.S. subsidiary, will not include more than 65% of the voting stock of such first-tier non-U.S. subsidiary), subject to certain exceptions; and |
|
|
• |
a security interest in substantially all other tangible and intangible assets of the Company and each guarantor, subject to certain exceptions. |
The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
|
|
• |
50% (which percentage will be reduced to 25% and 0% if the Company attains certain first lien secured net leverage ratios) of the Company’s annual excess cash flow; |
|
|
• |
100% of the net cash proceeds of certain non-ordinary course asset sales by the Company and its restricted subsidiaries (including casualty and condemnation events, subject to de minimis thresholds), and subject to the right to reinvest 100% of such proceeds, subject to certain qualifications; and |
|
|
• |
100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than certain debt permitted under the Credit Agreement. |
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. We may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities.
53
Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at our option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at our option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of July 2, 2022, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively. In the event that LIBOR is phased out as is currently expected, the Credit Agreement provides that we and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate of such change and not receiving within five business days of such notification objections to such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Credit Agreement; provided that such lending syndicate may not object to a SOFR-based successor rate contained in any such amendment. If we fail to do so, our borrowings will be based off of the alternative base rate plus a margin.
On a quarterly basis, we pay a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon our Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement).
The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default.
The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, we must be in compliance with a Consolidated First Lien Leverage Ratio of 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with the first fiscal quarter of 2023, with a step down to 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including with the first fiscal quarter of 2024, with an additional step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with the first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025. As of July 2, 2022, our actual Consolidated First Lien Leverage Ratio was 4.60:1.00 and there were no borrowings under our Revolving Credit Facility and total letters of credit issued were $1.1 million. We may not be able to satisfy the Consolidated First Lien Leverage Ratio in the future, and as a result, it may effectively limit the amount of funds we are able to borrow under the Revolving Credit Facility.
Senior Secured Notes
The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021, or, as amended, supplemented or modified from time to time, the Indenture, among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions.
54
The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. On or after April 15, 2024, we may on any one or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. Prior to April 15, 2024, we may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with an amount not to exceed the net proceeds of certain equity offerings at 104.500% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Prior to April 15, 2024, we may redeem some or all of the Senior Secured Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, during any twelve-month period ending prior to April 15, 2024, we may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a purchase price equal to 103.000% of the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, we must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date.
The Senior Secured Notes are guaranteed on a senior secured basis by our subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens.
Outstanding Debt
At July 2, 2022, we had $1,445.0 million outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945.0 million, $0.0 drawn down on the Revolving Credit Facility and $500.0 million in aggregate principal amount of Senior Secured Notes issued and outstanding.
At July 2, 2022 and January 1, 2022, our debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with our variable-rate borrowings. Further information regarding our interest rate swaps can be found in Part I, Item 1 of this Quarterly Report on Form 10-Q under Note 11 “Derivative Instruments and Hedging” in the Notes to the Consolidated Financial Statements. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, exclusive of the impact of the swaps then in effect, was approximately 4.63% and 5.11% per annum at July 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on our outstanding debt, including the impact of the swaps then in effect, was approximately 5.12% and 5.62% per annum at July 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates.
The following schedule sets forth our year-by-year debt obligations at July 2, 2022:
Total Debt Obligation
(Including Current Portion)
At July 2, 2022
(in millions)
|
Remainder of fiscal 2022 |
|
$ |
— |
|
|
Fiscal 2023 |
|
|
— |
|
|
Fiscal 2024 |
|
|
— |
|
|
Fiscal 2025 |
|
|
— |
|
|
Fiscal 2026 |
|
|
— |
|
|
Fiscal 2027 |
|
|
10.0 |
|
|
Thereafter |
|
|
1,435.0 |
|
|
Total |
|
$ |
1,445.0 |
|
Note: Totals may not sum due to rounding.
55
Accumulated Other Comprehensive Loss
Our accumulated other comprehensive loss includes changes in the fair value of derivative instruments and the effects of foreign currency translations. At July 2, 2022 and July 3, 2021, the cumulative balance of changes in the fair value of derivative instruments, net of taxes, was a gain of $3.5 million and a loss of $15.9 million, respectively. At July 2, 2022 and July 3, 2021, the cumulative balance of the effects of foreign currency translations, net of taxes, was a loss of $14.1 million and a loss of $2.9 million, respectively.
Dividends and Stock Transactions
We do not currently pay a dividend and we have no current plans to pay dividends in the foreseeable future. Any future determination to declare and pay dividends will be made at the sole discretion of our Board of Directors, after taking into account our financial condition and results of operations, capital requirements, contractual, legal, tax and regulatory restrictions, the provisions of Virginia law affecting the payment of distributions to shareholders and such other factors our Board of Directors may deem relevant. In addition, our ability to pay dividends may be limited by covenants in our existing indebtedness, including the Credit Agreement governing the Credit Facilities and the Indenture governing the Senior Secured Notes, and may be limited by the agreements governing other indebtedness we or our subsidiaries incur in the future.
On October 9, 2003, our Board of Directors authorized, and we announced, a program to repurchase up to $250.0 million of our outstanding common stock. On each of June 13, 2005, May 25, 2006 and October 21, 2010, our Board of Directors authorized, and we announced, the addition of $250.0 million to this program. The repurchase program allows for shares to be purchased from time to time in the open market or through privately negotiated transactions. No shares will be purchased from Artal Holdings Sp. z o.o., Succursale de Luxembourg and its parents and subsidiaries under this program. The repurchase program currently has no expiration date. During the six months ended July 2, 2022 and July 3, 2021, we repurchased no shares of our common stock under this program.
EBITDAS, Adjusted EBITDAS and Net Debt
We define EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization and stock-based compensation and Adjusted EBITDAS, a non-GAAP financial measure, as earnings before interest, taxes, depreciation, amortization, stock-based compensation, franchise rights acquired and goodwill impairments, net restructuring charges and early extinguishment of debt.
The table below sets forth the reconciliations for EBITDAS and Adjusted EBITDAS, each a non-GAAP financial measure, to net (loss) income, the most comparable GAAP financial measure, for the three and six months ended July 2, 2022 and July 3, 2021, and EBITDAS and Adjusted EBITDAS to net income for the trailing twelve months ended July 2, 2022:
(in millions)
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
|
|
||||||||||
|
|
|
July 2, 2022 |
|
|
July 3, 2021 |
|
|
July 2, 2022 |
|
|
July 3, 2021 |
|
|
Trailing Twelve Months |
|
|||||
|
Net (loss) income |
|
$ |
(4.6 |
) |
|
$ |
8.9 |
|
|
$ |
(12.9 |
) |
|
$ |
(9.4 |
) |
|
$ |
63.4 |
|
|
Interest |
|
|
19.3 |
|
|
|
20.3 |
|
|
|
37.9 |
|
|
|
49.4 |
|
|
|
76.4 |
|
|
Taxes |
|
|
(2.9 |
) |
|
|
1.0 |
|
|
|
(4.7 |
) |
|
|
(6.9 |
) |
|
|
12.0 |
|
|
Depreciation and amortization |
|
|
10.6 |
|
|
|
11.4 |
|
|
|
21.4 |
|
|
|
23.3 |
|
|
|
43.5 |
|
|
Stock-based compensation |
|
|
2.3 |
|
|
|
7.9 |
|
|
|
7.0 |
|
|
|
13.2 |
|
|
|
15.1 |
|
|
EBITDAS |
|
$ |
24.7 |
|
|
$ |
49.4 |
|
|
$ |
48.8 |
|
|
$ |
69.7 |
|
|
$ |
210.4 |
|
|
Franchise rights acquired and goodwill impairments |
|
|
26.4 |
|
|
|
— |
|
|
|
26.4 |
|
|
|
— |
|
|
|
26.4 |
|
|
2022 plan restructuring charges |
|
|
19.1 |
|
|
|
— |
|
|
|
19.1 |
|
|
|
— |
|
|
|
19.1 |
|
|
2021 plan restructuring charges |
|
|
(0.6 |
) |
|
|
6.0 |
|
|
|
(0.3 |
) |
|
|
11.6 |
|
|
|
9.7 |
|
|
2020 plan restructuring charges |
|
|
— |
|
|
|
(0.8 |
) |
|
|
(0.1 |
) |
|
|
(0.8 |
) |
|
|
(0.9 |
) |
|
Early extinguishment of debt |
|
|
— |
|
|
|
29.2 |
|
|
|
— |
|
|
|
29.2 |
|
|
|
1.2 |
|
|
Adjusted EBITDAS (1) |
|
$ |
69.6 |
|
|
$ |
83.7 |
|
|
$ |
93.9 |
|
|
$ |
109.6 |
|
|
$ |
266.0 |
|
56
Note: Totals may not sum due to rounding.
|
(1) |
The “Adjusted EBITDAS” measure is a non-GAAP financial measure that (i) adjusts the consolidated statements of net income for the three months ended July 2, 2022 to exclude the impact of the $26.4 million of franchise rights acquired and goodwill impairments and the net impact of the $19.1 million of 2022 plan restructuring charges and the reversal of $0.6 million of 2021 plan restructuring charges; (ii) adjusts the consolidated statements of net income for the three months ended July 3, 2021 to exclude the net impact of the $6.0 million of 2021 plan restructuring charges and the reversal of $0.8 million of 2020 plan restructuring charges and the impact of the $29.2 million early extinguishment of debt; (iii) adjusts the consolidated statements of net income for the six months ended July 2, 2022 to exclude the impact of the $26.4 million of franchise rights acquired and goodwill impairments and the net impact of the $19.1 million of 2022 plan restructuring charges, the reversal of $0.3 million of 2021 plan restructuring charges and the reversal of $0.1 million of 2020 plan restructuring charges; (iv) adjusts the consolidated statements of net income for the six months ended July 3, 2021 to exclude the net impact of the $11.6 million of 2021 plan restructuring charges and the reversal of $0.8 million of 2020 plan restructuring charges and the impact of the $29.2 million early extinguishment of debt; and (v) adjusts EBITDAS for the trailing twelve months ended July 2, 2022 to exclude the impact of the $26.4 million of franchise rights acquired and goodwill impairments, the net impact of the $19.1 million of 2022 plan restructuring charges, the $9.7 million of 2021 plan restructuring charges and the reversal of $0.9 million of 2020 plan restructuring charges and the impact of the $1.2 million early extinguishment of debt. See “Non-GAAP Financial Measures” above for an explanation of our use of non-GAAP financial measures. |
Reducing leverage is a capital structure priority for the Company. As of July 2, 2022, our net debt/Adjusted EBITDAS ratio was 4.8x.
The table below sets forth the reconciliation for net debt, a non-GAAP financial measure, to total debt, the most comparable GAAP financial measure, for the six months ended:
(in millions)
|
|
|
July 2, 2022 |
|
|
|
Total debt |
|
$ |
1,445.0 |
|
|
Less: Unamortized deferred financing costs |
|
|
11.6 |
|
|
Less: Unamortized debt discount |
|
|
13.2 |
|
|
Less: Cash on hand |
|
|
148.6 |
|
|
Net debt |
|
$ |
1,271.6 |
|
Note: Totals may not sum due to rounding.
We present EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS because we consider them to be useful supplemental measures of our performance. In addition, we believe EBITDAS, Adjusted EBITDAS and net debt/Adjusted EBITDAS are useful to investors, analysts and rating agencies in measuring the ability of a company to meet its debt service obligations. See “—Non-GAAP Financial Measures” herein for an explanation of our use of these non-GAAP financial measures.
OFF-BALANCE SHEET ARRANGEMENTS
As part of our ongoing business, we do not participate in arrangements that generate relationships with unconsolidated entities or financial partnerships established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes, such as entities often referred to as structured finance or special purpose entities.
SEASONALITY
Our business is seasonal due to the importance of the winter season to our overall member recruitment environment. Historically, we experience our highest level of recruitment during the first quarter of the year, which is supported with the highest concentration of advertising spending. Therefore, our number of End of Period Subscribers in the first quarter of the year is typically higher than the number in other quarters of the year, historically reflecting a decline over the course of the year.
57
AVAILABLE INFORMATION
Corporate information and our press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments thereto, are available free of charge on our corporate website at corporate.ww.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (i.e., generally the same day as the filing), or the SEC. Moreover, we also make available at that site the Section 16 reports filed electronically by our officers, directors and 10 percent shareholders.
We use our corporate website at corporate.ww.com and certain social media channels such as our corporate Facebook page (www.facebook.com/WW), Instagram account (Instagram.com/WW) and Twitter account (@ww_us) as channels of distribution of Company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. The contents of our website and social media channels shall not be deemed to be incorporated herein by reference.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of July 2, 2022, the market risk disclosures appearing in “Item 7A. Quantitative and Qualitative Disclosures about Market Risk” of our Annual Report on Form 10-K for fiscal 2021 have not materially changed from January 1, 2022.
At the end of the second quarter of fiscal 2022, borrowings under the Credit Facilities bore interest at LIBOR plus an applicable margin of 3.50%. For the Term Loan Facility, the minimum interest rate for LIBOR applicable to such facility pursuant to the terms of the Credit Agreement was set at 0.50%, referred to herein as the LIBOR Floor. In addition, as of July 2, 2022, our interest rate swaps in effect had an aggregate notional amount of $500.0 million. Accordingly, as of July 2, 2022, based on the amount of variable rate debt outstanding and the then-current LIBOR rate, after giving consideration to the impact of the interest rate swaps and the LIBOR Floor, a hypothetical 90 basis point increase in interest rates would have increased annual interest expense by approximately $4.0 million and a hypothetical 90 basis point decrease in interest rates would have decreased annual interest expense by approximately $4.0 million. This increase and decrease would have been driven primarily by the interest rate applicable to our Term Loan Facility.
|
ITEM 4. |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Our management, with the participation of our principal executive officer and our principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of July 2, 2022, the end of the second quarter of fiscal 2022. Based upon that evaluation and subject to the foregoing, our principal executive officer and our principal financial officer concluded that, as of the end of the second quarter of fiscal 2022, the design and operation of our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
58
PART II – OTHER INFORMATION
|
ITEM 1. |
LEGAL PROCEEDINGS |
The information called for by this item is incorporated herein by reference to Note 10 “Legal” of the notes to the unaudited consolidated financial statements contained in this Quarterly Report on Form 10-Q.
|
ITEM 1A. |
RISK FACTORS |
There have been no material changes in the risk factors from those detailed in our Annual Report on Form 10-K for fiscal 2021.
|
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Nothing to report under this item.
|
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES |
Nothing to report under this item.
|
ITEM 4. |
MINE SAFETY DISCLOSURES |
Not applicable.
|
ITEM 5. |
OTHER INFORMATION |
On August 2, 2022, the Company entered into a continuity agreement with Michael Lysaght, the Company’s Chief Technology Officer, which entitles him to receive specified termination payments upon a change in control of the Company. The agreement has an initial term which expires on December 31, 2024 and continues to renew annually thereafter unless the Company provides 180-day advance written notice to Mr. Lysaght that the term of the agreement will not renew. However, upon the occurrence of a change in control of the Company, the term of the agreement may not terminate until the second anniversary of the date of the change in control. The severance benefits provided under the agreement to Mr. Lysaght in the event of certain qualifying terminations in connection with a change in control are as follows: (i) cash payment equal to two times the sum of his annual base salary on the date of the change in control (or, if higher, the annual base salary in effect immediately prior to when the notice of termination is given) and his target annual bonus under the Company’s bonus plan in respect of the fiscal year in which the termination occurs (or, if higher, the average annual bonus actually earned by him in respect of the three full fiscal years prior to the year in which the notice of termination is given); (ii) cash payment equal to the higher of (A) the pro rata portion of his target bonus in respect of the fiscal year in which the date of termination occurs and (B) if the Company is exceeding the performance targets established under its bonus plan for such fiscal year as of the date of termination, his actual annual bonus payable under such bonus plan based upon such achievement (such pro rata portion in either case calculated from January 1 of such year through the date of termination); and (iii) eighteen months of continued medical, dental, and vision insurance coverage (excluding accidental death and disability insurance) for him and his dependents. The foregoing description is qualified in its entirety by reference to Mr. Lysaght’s continuity agreement, the form of which is filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for fiscal 2021 filed on March 1, 2022, and is incorporated by reference herein.
59
|
ITEM 6. |
EXHIBITS |
|
Exhibit Number |
|
Description |
|
|
|
|
|
†*Exhibit 10.1 |
|
|
|
|
|
|
|
*Exhibit 31.1 |
|
Rule 13a-14(a) Certification by Sima Sistani, Chief Executive Officer. |
|
|
|
|
|
*Exhibit 31.2 |
|
Rule 13a-14(a) Certification by Amy O’Keefe, Chief Financial Officer. |
|
|
|
|
|
*Exhibit 32.1 |
|
|
|
|
|
|
|
*Exhibit 101 |
|
|
|
|
|
|
|
*EX-101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
|
|
|
|
|
*EX-101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
*EX-101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
*EX-101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
*EX-101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
*EX-101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
*Exhibit 104 |
|
The cover page from WW International, Inc.’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments). |
|
* |
Filed herewith. |
|
† |
Represents a management arrangement or compensatory plan. |
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
WW INTERNATIONAL, INC. |
|
|
|
|
|
|
Date: August 4, 2022 |
By: |
/s/ Sima Sistani |
|
|
|
Sima Sistani |
|
|
|
Chief Executive Officer and Director (Principal Executive Officer) |
|
Date: August 4, 2022 |
By: |
/s/ Amy O’Keefe |
|
|
|
Amy O’Keefe |
|
|
|
Chief Financial Officer (Principal Financial Officer) |
61
Exhibit 10.1
SEPARATION AGREEMENT AND GENERAL RELEASE
WW INTERNATIONAL, INC., which maintains its principal offices at 675 Avenue of the Americas, New York, NY 10010 (“Company”), and Nick Hotchkin (“you,” “your,” or “yourself”), with the intent to buy peace from future claims, enter into this Separation Agreement and General Release (“Agreement”) as follows:
1.Last Day of Employment/Execution of Agreement. Your last day of employment with the Company was on April 22, 2022 (the “Termination Date”). In order for this Agreement to become effective and enforceable, you must execute this Agreement on or after the Termination Date. If you execute this Agreement prior to the Termination Date, this Agreement will have no force or effect. You shall retain all rights to indemnification, and directors and officers liability insurance coverage, for all claims which may have arisen prior to, or on, your Termination Date, as set forth in the Company’s existing insurance policies and/or as otherwise provided for in its corporate policies.
2.Separation Benefits. Provided that you timely sign (and do not timely revoke) this Agreement, and you otherwise satisfy your obligations as set forth in this Agreement:
(a) You will be entitled to a one-time lump sum severance payment in the amount of $905,626.25 (“Gross Severance Payment”), which represents 15 months’ pay at your most recent salary level.
(b)The Company shall pay the employer portion of your COBRA premiums at the same level of coverage in effect for you and your eligible dependents as of the Termination Date for the first 15 months of your COBRA coverage (“COBRA Subsidy Period”) following your Termination Date. You shall be responsible for the employee portion of your premiums during the COBRA Subsidy Period, and for the entire premium for any COBRA coverage you elect to receive after the termination of the COBRA Subsidy Period. Under the Company’s current health insurance plan and under your current level of coverage, the total amount of the employee portion of the COBRA premiums over the entire COBRA Subsidy Period is $9,526.15 (“COBRA Contribution Amount”).
(c)Your COBRA Contribution Amount ($9,526.15) shall be deducted in full from your Gross Severance Payment ($905,626.25), leaving you with a remaining severance payment of $896,100.10 (“Net Severance Payment”). Your Net Severance Payment shall be subject to all applicable withholdings and standard deductions, and will be included on an applicable W-2 Form issued by the Company. Your Net Severance Payment will be paid within 20 days of the end of the revocation period referenced in Section 16(c) below.
(d)In the event you obtain alternative health insurance coverage prior to the end of your COBRA Subsidy Period, the Company shall issue you a payment for the pro-rated amount of the COBRA Contribution Amount for any months in which you did not remain enrolled in the Company’s health insurance plan during the COBRA Subsidy Period.
(e) You will receive a one-time lump sum payment in the amount of $10,000, less all applicable withholdings and standard deductions, in lieu of the outplacement services package for which you would have otherwise been eligible. This lump sum payment will be paid within 20 days of the end of the revocation period referenced in Section 16(c) below, and will be included on an applicable W-2 Form issued by the Company.
3.No Consideration Absent Execution of this Agreement. You understand and agree that the payments specified in Section 2 above would neither be paid nor provided but for the execution (and non-revocation) of this Agreement and the complete fulfillment of the promises contained herein. You understand and agree that such payments are in lieu of any other consideration, if any, you may otherwise be entitled to as of the Termination Date under any agreement or arrangement with the Company or any Company policy.
1
4.No Other Compensation or Benefits. You agree that you have no entitlement to any compensation, bonus, severance pay, vacation pay or other benefits, damages, attorneys’ fees or costs from the Company, except as specifically provided in this Agreement, and that you will not bring any action contrary to this understanding.
5.No Additional Claims. You affirm that you have neither filed, nor caused to be filed, and presently are not a party to, any claim, complaint, or action against the Company in any forum. You further affirm that you have not been retaliated against for reporting any allegations of wrongdoing by the Company or its officers or employees, including any allegations of corporate fraud. You furthermore affirm that you have not been improperly denied any leave requested under the Family and Medical Leave Act.
6.General Release of Claims.
(a)You, on behalf of yourself and your present and/or former heirs, beneficiaries, executors, creditors, dependents, spouse(s), administrators, attorneys, representatives and agents, successors, and assigns, knowingly and voluntarily release and forever discharge, indemnify and hold harmless the Company and all of its present or former parent corporations, affiliates, subsidiaries, divisions, successors and assigns, including but not limited to WW North America Holdings, LLC. and ww.com, and all of their respective current and former owners, shareholders, insurers, attorneys, benefit plans, plan administrators, employees, officers, directors, representatives and agents thereof (collectively, the “Releasees”), jointly and individually, of and from any and all claims, known and unknown, you have or may have against any or all of the Releasees from the beginning of time through the date of your execution of this Agreement to the fullest extent permitted by law, including, but not limited to, any claims: (a) arising out of, or in any way related to, your employment with the Company, or the termination thereof; (b) arising out of, or in any way related to, any federal, state, or local law or regulation prohibiting discrimination, harassment, and/or retaliation on the basis of age, race, color, religion, disability, sex, national origin, citizenship or any other protected class, or engaging in any protected activity relating to such laws, including but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, as amended by the Older Workers Benefit Protection Act of 1990, the Americans With Disabilities Act, the Family Medical Leave Act, the Workers Adjustment and Retraining Notification Act, the Sarbanes-Oxley Act, the Fair Credit Reporting Act, and the Fair Labor Standards Act; (c) arising out of, or in any way related to, any other federal, state or local law or regulation dealing with employment or benefits, or concerning any other matter whatsoever; (d) based in contract, tort or public policy; (e) for attorneys’ fees or litigation expenses; and (f) arising out of, or in any way related to, any transactions, occurrences, acts, statements, disclosures, or omissions occurring prior to the date you executed this Agreement. This Agreement, however, excludes (i) any claims made under state workers’ compensation or unemployment laws, and/or any claims that cannot be waived by law, (ii) any claims to severance payments or benefits under this Agreement, (iii) any rights to vested employee benefits and equity awards, (iv) any rights as a shareholder of the Company and (v) any claims to coverage under any indemnification agreement or liability insurance arrangement.
(b)California Waiver of California Civil Code § 1542. If you worked or reside in California, to effect a full and complete release as described above, you expressly waive and relinquish all rights and benefits of §1542 of the Civil Code of the State of California, and do so understanding and acknowledging the significance and consequence of specifically waiving §1542, which states:
A general release does not extend to claims that the creditor or releasing party does not know or suspect to exist in his or her favor at the time of executing the release and that, if known by him or her, would have materially affected his or her settlement with the debtor or released party.
2
Thus, notwithstanding the provisions of section 1542, and to implement a full and complete release and discharge of the Releasees, you expressly acknowledge this Agreement is intended to include in its effect, without limitation, all claims you do not know or suspect to exist in your favor at the time of signing this Agreement, and that this Agreement contemplates the extinguishment of any such claims. You warrant that you have read this Agreement, including this waiver of California Civil Code section 1542, and that you have consulted with or had the opportunity to consult with counsel of your choosing about whether to sign this Agreement and specifically about the waiver of section 1542, and that you understand this Agreement and the section 1542 waiver, and so you freely and knowingly enter into this Agreement. You further acknowledge that you later may discover facts different from or in addition to those you now know or believe to be true regarding the matters released or described in this Agreement, and even so you agree that the releases and agreements contained in this Agreement shall remain effective in all respects notwithstanding any later discovery of any different or additional facts. You expressly assume any and all risk of any mistake in connection with the true facts involved in the matters, disputes, or controversies released or described in this Agreement or with regard to any facts now unknown to you relating thereto.
7.Notice of Participation in Third Party Actions. If you are required by subpoena, court order, or other legal process to provide testimony or documents in any lawsuit, arbitration, administrative proceeding, or governmental investigation or audit brought against any of the Releasees, you will give immediate notice to the Company, by e-mail to Seth Kaplan, Senior Vice President, Legal and People, WW International, Inc., at seth.kaplan@ww.com, as well as by telephone at 212-817-4293, as soon as possible and in no event less than five (5) business days prior to the date of your required compliance with any such subpoena or other legal process in order to allow the Company an opportunity to make a motion to quash or to otherwise oppose such process.
8.Non-Disparagement. Subject to Sections 9(b) and 9(c) below, you agree that you shall not make, issue or authorize any disparaging, critical or otherwise negative statements regarding any of the Releasees, whether orally or in writing, to any individual, entity or party whatsoever, or post any such statements on any online forum or website; provided, however, that nothing in this Agreement shall restrict you from making truthful statements: (a) when required by law, subpoena, or court order; (b) in confidence to a professional advisor for the purpose of securing professional advice; or (c) pursuant to legal process between you and the Company.
9.Confidentiality.
a)You agree not to use, disclose to others, or permit anyone access to any of Company's trade secrets or confidential or proprietary information (collectively, “Confidential Information”), subject to the provisions provided below. Confidential Information does not include information that is or becomes in the public domain or otherwise generally known to the public or the industry. In addition, if applicable, you acknowledge and confirm that, among other provisions, any noncompetition, nonsolicitation, confidentiality, no raid or solicitation or other similar provisions set forth in any previous stock award, confidentiality, noncompetition, assignment of work product or other similar agreements with the Company shall remain in full force and effect.
b) Nothing in this Agreement shall prohibit or impede you from communicating, cooperating or filing a complaint with any U.S. federal, state or local governmental or law enforcement branch, agency or entity (collectively, a “Governmental Entity”) with respect to possible violations of any U.S. federal, state or local law or regulation, or otherwise making disclosures to any Governmental Entity, in each case, that are protected under the whistleblower provisions of any such law or regulation, provided that in each case such communications and disclosures are consistent with applicable law. You need not obtain the prior authorization of, or to give notice to, the Company regarding any such communication or disclosure. Moreover, nothing in this Agreement prohibits or prevents you from discussing or disclosing information about, or the underlying facts and circumstances of any claim of, unlawful acts in the workplace or criminal conduct, including
3
discrimination, harassment, retaliation, sexual assault or abuse or any other conduct that you have reason to believe is unlawful including, but not limited to, factual information related to any claims for sexual assault or under California’s Fair Employment and Housing Act (if applicable), or from testifying in an administrative, legislative or judicial proceeding concerning alleged criminal conduct or alleged unlawful employment practices when you have been required or requested to attend the proceeding pursuant to a court order, subpoena or written request from a Governmental Entity. Moreover, Confidential Information may be disclosed pursuant to a subpoena or court process to the extent legally required, including any dispute between you and any of the Releasees, subject to an appropriate order of confidentiality.
c)You understand and acknowledge that an individual shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that is made: (i) in confidence to a federal, state, or local government official or to an attorney solely for the purpose of reporting or investigating a suspected violation of law, or (ii) in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. You understand and acknowledge further that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose the trade secret to the attorney of the individual and use the trade secret information in the court proceeding, if the individual files any document containing the trade secret under seal, and does not disclose the trade secret, except pursuant to court order.
d)Notwithstanding the foregoing, under no circumstance will you be authorized to disclose any information covered by the Company’s attorney-client privilege or the Company’s attorney work product: (i) without the prior written consent of the Company’s General Counsel or other officer designated by the Company, or (ii) unless such disclosure of that information would otherwise be permitted pursuant to 17 CFR 205.3(d)(2), applicable state attorney conduct rules, or otherwise under applicable law or court order.
10.Return of Company Property and Confidential Information. You affirm that, as of your date of execution of this Agreement, you have returned all Company property, documents, and/or any Confidential Information in your possession or control. You acknowledge that your entitlement to the separation benefits set forth in Section 2 above is expressly contingent upon all Confidential Information and Company property being returned in a timely manner. Notwithstanding the foregoing, you may retain your contacts, calendars, personal correspondence, and all information and documentation reasonably needed for your personal tax return preparation purposes, and the Company shall cooperate with you in transferring your wireless accounts (including phone numbers and billing) if in the Company’s name. You may also may retain your Company electronic devices and mobile phone (subject to the Company’s ability to “scrub” the foregoing for the Company’s apps and/or Confidential Information).
11.Remedies. In addition to receiving any other remedies provided by law or in equity, if the Company prevails in any action against you for your alleged violation of the terms of Sections 7, 8 and/or 9, you shall be required to return and/or reimburse the Company for the after-tax portion of the payments referenced in Section 2 above in full (less $100). Under such circumstances, it is agreed and understood that this Agreement, including but not limited to the release provision set forth in Section 6 above, shall remain in full force and effect.
12.Neutral Reference. The Company agrees that, in response to any employment and reference inquiries by a third party regarding your employment with the Company, it shall provide only: (i) the dates that you were employed with the Company; (ii) the position(s) you held with the Company; and (iii) with your authorization, your salary history with the Company.
13.Non-Admission of Wrongdoing. Neither this Agreement, nor anything contained in it, shall constitute, or shall be used as, an admission by the Company of any liability or wrongdoing whatsoever, including but not limited to, any violation of any federal, state, local, or common laws, ordinances, or regulations. Neither this Agreement, nor anything contained in it, shall be introduced in any proceeding except to enforce the terms of this Agreement or to defend against any claim relating to the subject matter of the
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releases contained herein. Such introduction under these exceptions shall be pursuant to an appropriate order protecting its confidentiality.
14.Arbitration of Disputes or Claims. To the extent that any dispute arises out of or relating to this Agreement and to the extent that any party to this Agreement wishes to pursue any claims relating to your employment, your separation, or any claimed breach of this Agreement, you and the Company hereby agree to resolve any such disputes or claims exclusively through binding arbitration before JAMS in New York City to the fullest extent permitted by applicable law. The parties further agree that any claims or issues between the parties to this Agreement will be arbitrated on an individual basis and not as part of any group, class, or collective arbitration action. The parties further agree that any issue or dispute pertaining to the threshold question of whether a dispute, claim, or issue is subject to arbitration, that is, whether there is an agreement by the parties to arbitrate or not, will be decided by a state or federal court in New York City and not by an arbitrator. In any such dispute, this Agreement shall be governed and conformed in accordance with the laws of the State of New York without regard to its conflict or choice of law provisions.
15.Amendment. This Agreement may not be modified, altered or changed except by a written document signed by all parties.
16.Knowing and Voluntary Agreement. You expressly recognize and agree that, by entering into this Agreement, you are waiving any and all rights or claims that you may have arising under the Age Discrimination in Employment Act, as amended by the Older Workers Benefit Protection Act of 1990, which have arisen on or before the date of your execution of this Agreement. You are hereby advised to consult with an attorney of your choice prior to executing this Agreement. By your signature below, you understand and agree that:
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a) |
You have been provided a period of at least forty-five (45) full calendar days within which to consider this Agreement before executing it; |
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b) |
You are free to sign and deliver this Agreement in less than 45 days if you wish (but not before the Termination Date); |
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c) |
Following the date of your execution of this Agreement, you will have seven (7) full calendar days within which to revoke it. Any such revocation must be in writing and received by Seth Kaplan, Senior Vice President, Legal and People, by e-mail at seth.kaplan@ww.com on or before the end of the seventh (7th) day after you initially signed the Agreement in order to be valid. If you exercise your right of revocation in a timely manner as set forth above, your employment termination will remain in effect; however, you will not be entitled to the Separation Benefits offered herein; |
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d) |
You have carefully read and fully understand all of the provisions of this Agreement and have been advised to consult with legal counsel prior to executing this Agreement; |
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e) |
You are, through this Agreement, releasing the Company from any and all claims you may have against the Company, consistent with the terms of this Agreement; |
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f) |
You knowingly and voluntarily agree to all of the terms set forth in this Agreement; and |
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g) |
You knowingly and voluntarily intend to be legally bound by the terms set forth in this Agreement. |
17.Employee Information Disclosure. In Attachment A of this Agreement, which is hereby incorporated by reference, you are being given the following information as required by the Older
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Workers Benefit Protection Act: (i) a description of the group of individuals who the Company is terminating and is offering separation benefits in exchange for a release of claims; (ii) the eligibility factors for inclusion in that group; (iii) the time limits, if any, applicable to the separation benefits offer; (iv) the job titles and ages of all individuals who the Company is terminating and is offering separation benefits in exchange for a release of claims; and (v) the job titles and ages of all individuals who the Company is not terminating, but who were in the same job classifications or organizational unit as any individual covered in the group described in (iv).
18.Entire Agreement. This Agreement constitutes and contains the entire agreement between the parties, and supersedes and replaces all prior negotiations and all agreements, proposed or otherwise, written or oral, concerning the subject matter hereof. You have not relied on any representations, promises, or agreements of any kind in connection with your decision to accept this Agreement, except for those set forth in this Agreement. This is an integrated document.
19.Severability. With the exception of Section 6 above, if any provision of this Agreement or the application thereof is held invalid, such invalidation shall not affect the other provisions or applications of this Agreement, and to this end the provisions of this Agreement are declared to be severable. In the event Section 6 is held unenforceable by a court of competent jurisdiction in any action initiated by you or on your behalf, the Company’s obligations under Section 2 shall be null and void, and you shall be liable for the return and/or reimbursement of the payments listed therein.
20.Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and each of which shall together constitute a single agreement.
21.Acknowledgments. You acknowledge that you: (a) have carefully read this Agreement; (b) have been advised to, and have had an opportunity to, review this Agreement with an attorney of your choice; (c) understand all of the terms of this Agreement; (d) have not relied upon any representation or statement, written or oral, not set forth in this Agreement; and (e) have knowingly and voluntarily executed this Agreement.
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/s/ Nicholas P. Hotchkin |
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May 26, 2022 |
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Nick Hotchkin |
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Date |
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/s/ Seth Kaplan |
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May 26, 2022 |
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Seth Kaplan |
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Date |
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Senior Vice President, Legal & People |
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WW International, Inc. |
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EXHIBIT 31.1
CERTIFICATION
I, Sima Sistani, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of WW International, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: August 4, 2022 |
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Signature: |
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/s/ Sima Sistani |
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Sima Sistani |
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Chief Executive Officer and Director |
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(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
I, Amy O’Keefe, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of WW International, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: August 4, 2022 |
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Signature: |
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/s/ Amy O’Keefe |
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Amy O’Keefe |
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Chief Financial Officer |
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(Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of WW International, Inc. (the “Company”) for the quarterly period ended July 2, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, the undersigned officers of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
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2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: August 4, 2022 |
Signature: |
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/s/ Sima Sistani |
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Sima Sistani |
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Chief Executive Officer and Director |
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(Principal Executive Officer) |
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Signature: |
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/s/ Amy O’Keefe |
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Amy O’Keefe |
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Chief Financial Officer |
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(Principal Financial Officer) |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Jul. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|
| Statement Of Financial Position [Abstract] | ||
| Receivables, allowances | $ 1,906 | $ 1,726 |
| Common stock, par value | $ 0 | $ 0 |
| Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
| Common stock, shares issued | 122,052,000 | 122,052,000 |
| Treasury stock, shares | 51,691,000 | 51,988,000 |
CONSOLIDATED STATEMENTS OF NET INCOME - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
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| Revenues, net | $ 269,454 | $ 311,379 | $ 567,214 | $ 643,175 |
| Cost of revenues | 106,492 | 125,353 | 224,155 | 263,715 |
| Gross profit | 162,962 | 186,026 | 343,059 | 379,460 |
| Marketing expenses | 51,857 | 57,154 | 159,427 | 174,088 |
| Selling, general and administrative expenses | 71,319 | 69,199 | 134,877 | 142,870 |
| Franchise rights acquired and goodwill impairments | 26,420 | 26,420 | ||
| Operating income | 13,366 | 59,673 | 22,335 | 62,502 |
| Interest expense | 19,255 | 20,293 | 37,926 | 49,416 |
| Other expense, net | 1,613 | 381 | 1,956 | 143 |
| Early extinguishment of debt | 29,169 | 29,169 | ||
| (Loss) income before income taxes | (7,502) | 9,830 | (17,547) | (16,226) |
| (Benefit from) provision for income taxes | (2,879) | 970 | (4,681) | (6,859) |
| Net (loss) income | $ (4,623) | $ 8,860 | $ (12,866) | $ (9,367) |
| (Net loss) earnings per share | ||||
| Basic | $ (0.07) | $ 0.13 | $ (0.18) | $ (0.14) |
| Diluted | $ (0.07) | $ 0.12 | $ (0.18) | $ (0.14) |
| Weighted average common shares outstanding | ||||
| Basic | 70,305 | 69,588 | 70,195 | 69,336 |
| Diluted | 70,305 | 71,160 | 70,195 | 69,336 |
| Subscription | ||||
| Revenues, net | $ 240,391 | $ 272,871 | $ 497,376 | $ 552,691 |
| Cost of revenues | 84,129 | 95,825 | 170,170 | 194,929 |
| Product and Other | ||||
| Revenues, net | 29,063 | 38,508 | 69,838 | 90,484 |
| Cost of revenues | $ 22,363 | $ 29,528 | $ 53,985 | $ 68,786 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
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| Statement Of Income And Comprehensive Income [Abstract] | ||||
| Net (loss) income | $ (4,623) | $ 8,860 | $ (12,866) | $ (9,367) |
| Other comprehensive (loss) gain: | ||||
| Foreign currency translation (loss) gain | (8,325) | 2,857 | (8,466) | 1,737 |
| Income tax benefit (expense) on foreign currency translation (loss) gain | 2,089 | (720) | 2,125 | (438) |
| Foreign currency translation (loss) gain, net of taxes | (6,236) | 2,137 | (6,341) | 1,299 |
| Gain on derivatives | 4,402 | 1,522 | 19,158 | 6,726 |
| Income tax expense on gain on derivatives | (1,106) | (383) | (4,815) | (1,694) |
| Gain on derivatives, net of taxes | 3,296 | 1,139 | 14,343 | 5,032 |
| Total other comprehensive (loss) gain | (2,940) | 3,276 | 8,002 | 6,331 |
| Comprehensive (loss) income | $ (7,563) | $ 12,136 | $ (4,864) | $ (3,036) |
Basis of Presentation |
6 Months Ended | ||
|---|---|---|---|
Jul. 02, 2022 | |||
| Accounting Policies [Abstract] | |||
| Basis of Presentation |
The accompanying consolidated financial statements include the accounts of WW International, Inc. and all of its subsidiaries. The terms “Company” and “WW” as used throughout these notes are used to indicate WW International, Inc. and all of its operations consolidated for purposes of its financial statements. The Company’s “Digital” business refers to providing subscriptions to the Company’s digital product offerings, including Personal Coaching + Digital and Digital 360 as applicable. The Company’s “Workshops + Digital” business refers to providing unlimited access to the Company’s workshops combined with the Company’s digital subscription product offerings to commitment plan subscribers, including former Digital 360 members as applicable. It also includes the provision of access to workshops for members who do not subscribe to commitment plans, including the Company’s “pay-as-you-go” members. In the second quarter of fiscal 2022, the Company ceased offering its Digital 360 product. More than a majority of associated members were transitioned from the Company’s Digital business to its Workshops + Digital business during the second quarter, with a de minimis number transitioning during the beginning of the third quarter of fiscal 2022. The cessation of this product offering and these transitions of former Digital 360 members at the then-current pricing for such product impacted the number of End of Period Subscribers in each business as well as the associated Paid Weeks and Revenues for each business. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and include amounts that are based on management’s best estimates and judgments. While all available information has been considered, actual amounts could differ from those estimates. For example, the Company considered the impact of COVID-19 and its variants on the assumptions and estimates used when preparing its Quarterly Report on Form 10-Q quarterly financial statements. These assumptions and estimates may change as new events occur and additional information is obtained, and such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity. The consolidated financial statements include all of the Company’s majority-owned subsidiaries. All entities acquired, and any entity of which a majority interest was acquired, are included in the consolidated financial statements from the date of acquisition. All intercompany accounts and transactions have been eliminated in consolidation. The Company’s operating results for any interim period are not necessarily indicative of future or annual results. The consolidated financial statements are unaudited and, accordingly, they do not include all of the information necessary for a comprehensive presentation of results of operations, financial position and cash flow activity required by GAAP for complete financial statements but, in the opinion of management, reflect all adjustments including those of a normal recurring nature necessary for a fair statement of the interim results presented. In the second quarter of fiscal 2022, the Company identified and recorded out-of-period adjustments related to income tax errors resulting primarily from the reversal of (i) a basis difference related to goodwill and other intangibles and (ii) a U.S. federal income tax receivable that should have been adjusted in prior fiscal years. The impact of correcting these errors, which were immaterial to prior period financial statements and corrected in the second quarter of fiscal 2022, resulted in an income tax benefit of $2,150 and decreased net loss by $2,150 for the three and six months ended July 2, 2022. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for fiscal 2021 filed on March 1, 2022, which includes additional information about the Company, its results of operations, its financial position and its cash flows. |
Accounting Standards Adopted in Current Year |
6 Months Ended | ||
|---|---|---|---|
Jul. 02, 2022 | |||
| Accounting Changes And Error Corrections [Abstract] | |||
| Accounting Standards Adopted in Current Year |
In October 2021, the Financial Accounting Standards Board issued updated guidance to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to (i) recognition of an acquired contract liability and (ii) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this update require an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The effective date of the new guidance for public companies is for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The new guidance should be applied prospectively to business combinations occurring on or after its effective date. On January 2, 2022, the Company early adopted this updated guidance on a prospective basis, which did not have a material impact on its consolidated financial statements. |
Leases |
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| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases |
3.Leases At July 2, 2022 and January 1, 2022, the Company’s lease assets and lease liabilities, primarily for its studios and corporate offices, were as follows:
For the three and six months ended July 2, 2022 and July 3, 2021, the components of the Company’s lease expense were as follows:
At July 2, 2022 and January 1, 2022, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:
The Company’s leases have remaining lease terms of 0 to 10 years with a weighted average lease term of 7.14 years as of July 2, 2022. At July 2, 2022, the maturity of the Company’s lease liabilities in each of the next five fiscal years and thereafter were as follows:
Supplemental cash flow information related to leases for the six months ended July 2, 2022 and July 3, 2021 were as follows:
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Revenue |
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| Revenue From Contract With Customer [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue |
Revenues are recognized when control of the promised services or goods is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those services or goods. The following table presents the Company’s revenues disaggregated by revenue source:
The following tables present the Company’s revenues disaggregated by revenue source and segment:
Information about Contract Balances For Subscription Revenues, the Company can collect payment in advance of providing services. Any amounts collected in advance of services being provided are recorded in deferred revenue. In the case where amounts are not collected, but the service has been provided and the revenue has been recognized, the amounts are recorded in accounts receivable. The opening and ending balances of the Company’s deferred revenues were as follows:
Revenue recognized from amounts included in current deferred revenue as of January 1, 2022 was $43,372 for the six months ended July 2, 2022. Revenue recognized from amounts included in current deferred revenue as of January 2, 2021 was $48,227 for the six months ended July 3, 2021. The Company’s long-term deferred revenue, which is included in other liabilities on the Company’s consolidated balance sheet, represents revenue that will not be recognized during the next fiscal year and is generally related to upfront payments received as an inducement for entering into certain sales-based royalty agreements with third party licensees. This revenue is amortized on a straight-line basis over the term of the applicable agreement. |
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Acquisitions |
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Jul. 02, 2022 | |||||||||||||||
| Business Combinations [Abstract] | |||||||||||||||
| Acquisitions |
Acquisitions of Franchisees On February 18, 2022, the Company acquired the entire issued share capital of its Republic of Ireland franchisee, Denross Limited, and its Northern Ireland franchisee, Checkweight Limited, as follows:
On August 16, 2021, the Company acquired substantially all of the assets of its franchisee for certain territories in Maine, Weight Watchers of Maine, Inc., for a purchase price of $2,250. Payment was in the form of cash ($1,999), cash in reserves ($225) and assumed net liabilities ($26). The total purchase price was allocated to goodwill ($2,153), customer relationship value ($56) and franchise rights acquired ($41). The goodwill will be deductible for tax purposes. On March 22, 2021, the Company acquired substantially all of the assets of its Michigan franchisee, The WW Group, Inc., and its Ontario, Canada franchisee, The WW Group Co., as follows:
These acquisitions have been accounted for under the purchase method of accounting and, accordingly, earnings of the acquired franchises have been included in the consolidated operating results of the Company since the date of acquisition. |
Franchise Rights Acquired, Goodwill and Other Intangible Assets |
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| Goodwill And Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Franchise Rights Acquired, Goodwill and Other Intangible Assets |
Franchise rights acquired are due to acquisitions of the Company’s franchised territories as well as the acquisition of franchise promotion agreements and other factors associated with the acquired franchise territories. For the six months ended July 2, 2022, the change in the carrying value of franchise rights acquired was due to the impairments of the Canada and New Zealand units of account as discussed below, the effect of exchange rate changes and the Northern Ireland franchisee acquisition as described in Note 5. Goodwill primarily relates to the acquisition of the Company by The Kraft Heinz Company (successor to H.J. Heinz Company) in 1978, and the Company’s acquisitions of WW.com, LLC (formerly known as WW.com, Inc. and WeightWatchers.com, Inc.) in 2005 and the Company’s franchised territories. See Note 5 for additional information about acquisitions by the Company. For the six months ended July 2, 2022, the change in the carrying amount of goodwill was due to the Republic of Ireland franchisee and Northern Ireland franchisee acquisitions as described in Note 5, the impairment of the Company's wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) as discussed below and the effect of exchange rate changes as follows:
Franchise Rights Acquired Finite-lived franchise rights acquired are amortized over the remaining contractual period, which is generally less than one year. Indefinite-lived franchise rights acquired are tested for potential impairment on at least an annual basis or more often if events so require. In performing the impairment analysis for indefinite-lived franchise rights acquired, the fair value for franchise rights acquired is estimated using a discounted cash flow approach referred to as the hypothetical start-up approach for franchise rights related to the Company’s Workshops + Digital business and a relief from royalty methodology for franchise rights related to the Company’s Digital business. The aggregate estimated fair value for these rights is then compared to the carrying value of the unit of account for those franchise rights. The Company has determined the appropriate unit of account for purposes of assessing impairment to be the combination of the rights in both the Workshops + Digital business and the Digital business in the country in which the applicable acquisition occurred. The net book values of these franchise rights in the United States, Canada, United Kingdom, Australia and New Zealand as of the July 2, 2022 balance sheet date were $698,383, $34,556, $10,899, $6,125 and $3,574, respectively. In its hypothetical start-up approach analysis for fiscal 2022, the Company assumed that the year of maturity was reached after 7 years. Subsequent to the year of maturity, the Company estimated future cash flows for the Workshops + Digital business in each country based on assumptions regarding revenue growth and operating income margins. In the Company’s relief from royalty approach analysis for fiscal 2022, the cash flows associated with the Digital business in each country were based on the expected Digital revenue for such country and the application of a royalty rate based on current market terms. The cash flows for the Workshops + Digital and the Digital businesses were discounted utilizing rates which were calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt. Goodwill In performing the impairment analysis for goodwill, the fair value for the Company’s reporting units is estimated using a discounted cash flow approach. This approach involves projecting future cash flows attributable to the reporting unit and discounting those estimated cash flows using an appropriate discount rate. The estimated fair value is then compared to the carrying value of the reporting unit. The Company has determined the appropriate reporting unit for purposes of assessing annual impairment to be the country for all reporting units. The net book values of goodwill in the United States, Canada and other countries as of the July 2, 2022 balance sheet date were $104,019, $41,605 and $14,308, respectively. For all of the Company’s reporting units tested as of May 8, 2022, the Company estimated future cash flows by utilizing the historical debt-free cash flows (cash flows provided by operations less capital expenditures) attributable to that country and then applied expected future operating income growth rates for such country. The Company utilized operating income as the basis for measuring its potential growth because it believes it is the best indicator of the performance of its business. The Company then discounted the estimated future cash flows utilizing a discount rate which was calculated using the weighted-average cost of capital, which included the cost of equity and the cost of debt. Indefinite-Lived Franchise Rights Acquired and Goodwill Annual Impairment Test The Company reviews indefinite-lived intangible assets, including franchise rights acquired with indefinite lives, and goodwill for potential impairment on at least an annual basis or more often if events so require. The Company performed fair value impairment testing as of May 8, 2022 and May 9, 2021, each the first day of fiscal May, on its indefinite-lived intangible assets and goodwill. In performing its annual impairment analysis as of May 8, 2022, the Company determined that (i) the carrying amounts of its Canada and New Zealand franchise rights acquired with indefinite lived units of account exceeded their respective fair values and, as a result, the Company recorded impairment charges for its Canada and New Zealand units of account of $24,485 and $834, respectively, in the second quarter of fiscal 2022; and (ii) the carrying amounts of all of its other franchise rights acquired with indefinite lived units of account did not exceed their respective fair values and, therefore, no impairment existed with respect thereto. In performing its annual impairment analysis as of May 9, 2021, the Company determined that the carrying amounts of its franchise rights acquired with indefinite lived units of account did not exceed their respective fair values and, therefore, no impairment existed. In performing its annual impairment analysis as of May 8, 2022 and May 9, 2021, the Company determined that the carrying amounts of its goodwill reporting units did not exceed their respective fair values and, therefore, no impairment existed. When determining fair value, the Company utilizes various assumptions, including projections of future cash flows, growth rates and discount rates. A change in these underlying assumptions could cause a change in the results of the impairment assessments and, as such, could cause fair value to be less than the carrying amounts and result in an impairment of those assets. In the event such a result occurred, the Company would be required to record a corresponding charge, which would impact earnings. The Company would also be required to reduce the carrying amounts of the related assets on its balance sheet. Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment analysis performed for its United States unit of account, which holds 92.7% of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair value of this unit of account exceeded its carrying value by approximately 15%. Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment analysis performed for its Canada and New Zealand units of account, which hold 4.6 % and 0.5%, respectively, of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account were equal to their respective carrying values. Accordingly, a change in the underlying assumptions for the United States, Canada and New Zealand may change the results of the impairment assessment and, as such, could result in an impairment of the franchise rights acquired related to the United States, Canada and New Zealand, for which the net book values were $698,383, $34,556 and $3,574, respectively, as of July 2, 2022. Based on the results of the Company’s May 8, 2022 annual franchise rights acquired impairment analysis performed for its remaining units of account, which collectively hold 2.2% of the Company’s franchise rights acquired as of the July 2, 2022 balance sheet date, the estimated fair values of these units of account exceeded their respective carrying values by over 100%. Based on the results of the Company’s May 8, 2022 annual goodwill impairment analysis performed for all of its reporting units, all units, except for the Republic of Ireland, had an estimated fair value at least 35% higher than the respective unit’s carrying amount. Collectively, these reporting units represented 97.3% of the Company’s total goodwill as of the July 2, 2022 balance sheet date. Based on the results of the Company’s May 8, 2022 annual goodwill impairment analysis performed for its Republic of Ireland reporting unit, which holds 2.7% of the Company’s goodwill as of the July 2, 2022 balance sheet date, the estimated fair value of this reporting unit exceeded its carrying value by approximately 14%. Accordingly, a change in the underlying assumptions for the Republic of Ireland may change the results of the impairment assessment and, as such, could result in an impairment of the goodwill related to the Republic of Ireland, for which the net book value was $4,265 as of July 2, 2022. Kurbo Goodwill Impairment On August 10, 2018, the Company acquired substantially all of the assets of Kurbo Health, Inc., a family-based healthy lifestyle coaching program, for a net purchase price of $3,063, of which $1,101 was allocated to goodwill. The goodwill was deductible annually for tax purposes. The Company determined in the second quarter of fiscal 2022 to exit the Kurbo business in the third quarter of fiscal 2022 as part of its strategic plan. As a result of this determination, the Company recorded an impairment charge of $1,101 in the second quarter of fiscal 2022, which comprised the entire goodwill balance for Kurbo. Finite-lived Intangible Assets The carrying values of finite-lived intangible assets as of July 2, 2022 and January 1, 2022 were as follows:
Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $8,761 and $16,935 for the three and six months ended July 2, 2022, respectively. Aggregate amortization expense for finite-lived intangible assets was recorded in the amounts of $8,035 and $16,033 for the three and six months ended July 3, 2021, respectively. Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:
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Long-Term Debt |
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| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long-Term Debt |
The components of the Company’s long-term debt were as follows:
On April 13, 2021, the Company (1) repaid in full approximately $1,189,750 in aggregate principal amount of senior secured tranche B term loans due in 2024 under its then-existing credit facilities and (2) redeemed all of the $300,000 in aggregate principal amount of its then-outstanding 8.625% Senior Notes due in 2025 (the “Discharged Senior Notes”). On April 13, 2021, the Company’s then-existing credit facilities included a senior secured revolving credit facility (which included borrowing capacity available for letters of credit) due in 2022 with $175,000 in an aggregate principal amount of commitments. There were no outstanding borrowings under such revolving credit facility on that date. The Company funded such repayment of loans and redemption of notes with cash on hand as well as with proceeds received from approximately $1,000,000 in an aggregate principal amount of borrowings under its new credit facilities (as amended from time to time, the “Credit Facilities”) and proceeds received from the issuance of $500,000 in aggregate principal amount of 4.500% Senior Secured Notes due 2029 (the “Senior Secured Notes”), each as described below. These transactions are collectively referred to herein as the “April 2021 debt refinancing”. During the second quarter of fiscal 2021, the Company incurred fees of $37,910 (which included $12,939 of a prepayment penalty on the Discharged Senior Notes and $5,000 of a debt discount on its Term Loan Facility (as defined below)) in connection with the April 2021 debt refinancing. In addition, the Company recorded a loss on early extinguishment of debt of $29,169 in connection thereto. This early extinguishment of debt charge was comprised of $12,939 of a prepayment penalty on the Discharged Senior Notes, $9,017 of financing fees paid in connection with the April 2021 debt refinancing and the write-off of $7,213 of pre-existing deferred financing fees and debt discount. Credit Facilities The Credit Facilities were issued under a credit agreement, dated April 13, 2021 (as amended from time to time, the “Credit Agreement”), among the Company, as borrower, the lenders party thereto, and Bank of America, N.A. (“Bank of America”), as administrative agent and an issuing bank. The Credit Facilities consist of (1) $1,000,000 in aggregate principal amount of senior secured tranche B term loans due in 2028 (the “Term Loan Facility”) and (2) $175,000 in an aggregate principal amount of commitments under a senior secured revolving credit facility (which includes borrowing capacity available for letters of credit) due in 2026 (the “Revolving Credit Facility”). In December 2021, the Company made voluntary prepayments at par in an aggregate amount of $52,500 in respect of its outstanding term loans under the Term Loan Facility. As a result of these prepayments, the Company wrote off a debt discount and deferred financing fees of $1,183 in the aggregate in the fourth quarter of fiscal 2021. As of July 2, 2022, the Company had $945,000 in an aggregate principal amount of loans outstanding under the Credit Facilities, with $173,911 of availability and $1,089 in issued but undrawn letters of credit outstanding under the Revolving Credit Facility. There were no outstanding borrowings under the Revolving Credit Facility as of July 2, 2022. All obligations under the Credit Agreement are guaranteed by, subject to certain exceptions, each of the Company’s current and future wholly-owned material domestic restricted subsidiaries. All obligations under the Credit Agreement, and the guarantees of those obligations, are secured by substantially all of the assets of the Company and each guarantor, subject to customary exceptions, including:
The Credit Facilities require the Company to prepay outstanding term loans, subject to certain exceptions, with:
The foregoing mandatory prepayments will be used to reduce the installments of principal on the Term Loan Facility. The Company may voluntarily repay outstanding loans under the Credit Facilities at any time without penalty, except for customary “breakage” costs with respect to LIBOR loans under the Credit Facilities. Borrowings under the Term Loan Facility bear interest at a rate per annum equal to, at the Company’s option, either (1) an applicable margin plus a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.50% or (2) an applicable margin plus a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided that LIBOR is not lower than a floor of 0.50%. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to an applicable margin based upon a leverage-based pricing grid, plus, at the Company’s option, either (1) a base rate determined by reference to the highest of (a) 0.50% per annum plus the Federal Funds Effective Rate as determined by the Federal Reserve Bank of New York, (b) the prime rate of Bank of America and (c) the LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for an interest period of one month adjusted for certain additional costs, plus 1.00%; provided that such rate is not lower than a floor of 1.00% or (2) a LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, provided such rate is not lower than a floor of zero. As of July 2, 2022, the applicable margins for the LIBOR rate borrowings under the Term Loan Facility and the Revolving Credit Facility were 3.50% and 2.75%, respectively. In the event that LIBOR is phased out as is currently expected, the Credit Agreement provides that the Company and the administrative agent may amend the Credit Agreement to replace the LIBOR definition therein with a successor rate subject to notifying the lending syndicate of such change and not receiving within five business days of such notification objections to such replacement rate from lenders holding at least a majority of the aggregate principal amount of loans and commitments then outstanding under the Credit Agreement; provided that such lending syndicate may not object to a SOFR-based successor rate contained in any such amendment. If the Company fails to do so, its borrowings will be based off of the alternative base rate plus a margin. On a quarterly basis, the Company pays a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder, which commitment fee fluctuates depending upon the Company’s Consolidated First Lien Leverage Ratio (as defined in the Credit Agreement). The Credit Agreement contains other customary terms, including (1) representations, warranties and affirmative covenants, (2) negative covenants, including limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt, amendments of material agreements governing subordinated indebtedness, changes to lines of business and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions, and (3) customary events of default. The availability of certain baskets and the ability to enter into certain transactions are also subject to compliance with certain financial ratios. In addition, if the aggregate principal amount of extensions of credit outstanding under the Revolving Credit Facility as of any fiscal quarter end exceeds 35% of the amount of the aggregate commitments under the Revolving Credit Facility in effect on such date, the Company must be in compliance with a Consolidated First Lien Leverage Ratio of 5.75:1.00 for the period ending after the first fiscal quarter of 2022 through and including with the first fiscal quarter of 2023, with a step down to 5.50:1.00 for the period ending after the first fiscal quarter of 2023 through and including with the first fiscal quarter of 2024, with an additional step down to 5.25:1.00 for the period ending after the first fiscal quarter of 2024 through and including with the first fiscal quarter of 2025 and again to 5.00:1.00, for the period following the first fiscal quarter of 2025. As of July 2, 2022, the Company’s actual Consolidated First Lien Leverage Ratio was 4.60:1.00 and there were no borrowings under its Revolving Credit Facility and total letters of credit issued were $1,089. The Company may not be able to satisfy the Consolidated First Lien Leverage Ratio in the future, and as a result, it may effectively limit the amount of funds the Company is able to borrow under the Revolving Credit Facility. Senior Secured Notes The Senior Secured Notes were issued pursuant to an Indenture, dated as of April 13, 2021 (as amended, supplemented or modified from time to time, the “Indenture”), among the Company, the guarantors named therein and The Bank of New York Mellon, as trustee and notes collateral agent. The Indenture contains customary terms, events of default and covenants for an issuer of non-investment grade debt securities. These covenants include limitations on indebtedness, liens, mergers, acquisitions, asset sales, investments, distributions, prepayments of subordinated debt and transactions with affiliates, in each case subject to baskets, thresholds and other exceptions. The Senior Secured Notes accrue interest at a rate per annum equal to 4.500% and will mature on April 15, 2029. Interest on the Senior Secured Notes is payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. On or after April 15, 2024, the Company may on any one or more occasions redeem some or all of the Senior Secured Notes at a purchase price equal to 102.250% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the redemption date, such optional redemption price decreasing to 101.125% on or after April 15, 2025 and to 100.000% on or after April 15, 2026. Prior to April 15, 2024, the Company may on any one or more occasions redeem up to 40% of the aggregate principal amount of the Senior Secured Notes with an amount not to exceed the net proceeds of certain equity offerings at 104.500% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to, but not including, the redemption date. Prior to April 15, 2024, the Company may redeem some or all of the Senior Secured Notes at a make-whole price plus accrued and unpaid interest, if any, to, but not including, the redemption date. In addition, during any twelve-month period ending prior to April 15, 2024, the Company may redeem up to 10% of the aggregate principal amount of the Senior Secured Notes at a purchase price equal to 103.000% of the principal amount of the Senior Secured Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. If a change of control occurs, the Company must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. Following the sale of certain assets and subject to certain conditions, the Company must offer to purchase for cash the Senior Secured Notes at a purchase price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, to, but not including, the purchase date. The Senior Secured Notes are guaranteed on a senior secured basis by the Company’s subsidiaries that guarantee the Credit Facilities. The Senior Secured Notes and the note guarantees are secured by a first-priority lien on all the collateral that secures the Credit Facilities, subject to a shared lien of equal priority with the Company’s and each guarantor’s obligations under the Credit Facilities and subject to certain thresholds, exceptions and permitted liens. Outstanding Debt At July 2, 2022, the Company had $1,445,000 outstanding under the Credit Facilities and the Senior Secured Notes, consisting of borrowings under the Term Loan Facility of $945,000, $0 drawn down on the Revolving Credit Facility and $500,000 in aggregate principal amount of Senior Secured Notes issued and outstanding. At July 2, 2022 and January 1, 2022, the Company’s debt consisted of both fixed and variable-rate instruments. Interest rate swaps were entered into to hedge a portion of the cash flow exposure associated with the Company’s variable-rate borrowings. See Note 11 for information on the Company’s interest rate swaps. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, exclusive of the impact of the swaps then in effect, was approximately 4.63% and 5.11% per annum at July 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates. The weighted average interest rate (which includes amortization of deferred financing costs and debt discount) on the Company’s outstanding debt, including the impact of the swaps then in effect, was approximately 5.12% and 5.62% per annum at July 2, 2022 and January 1, 2022, respectively, based on interest rates on these dates. |
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Per Share Data |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Per Share Data |
8.Per Share Data Basic (net loss) earnings per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented. Diluted (net loss) earnings per share is calculated utilizing the weighted average number of common shares outstanding during the periods presented adjusted for the effect of dilutive common stock equivalents. The following table sets forth the computation of basic and diluted (net loss) earnings per share data:
The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted (net loss) earnings per share was 8,732 and 4,724 for the three months ended July 2, 2022 and July 3, 2021, respectively. The number of anti-dilutive common stock equivalents excluded from the calculation of the weighted average number of common shares for diluted net loss per share was 7,848 and 6,426 for the six months ended July 2, 2022 and July 3, 2021, respectively. |
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Taxes |
6 Months Ended |
|---|---|
Jul. 02, 2022 | |
| Income Tax Disclosure [Abstract] | |
| Taxes |
9.Taxes Income Taxes The effective tax rates for the three and six months ended July 2, 2022 were 38.4% and 26.7%, respectively. For the six months ended July 2, 2022, the tax benefit was primarily driven by a tax benefit recorded for out-of-period income tax adjustments, which was partially offset by tax expense related to tax shortfalls from stock compensation. For the six months ended July 2, 2022, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to tax benefits related to foreign-derived intangible income (“FDII”) and out-of-period income tax adjustments, partially offset by state income tax expense, tax expense from income earned in foreign jurisdictions and tax expense related to tax shortfalls from stock compensation. The effective tax rates for the three and six months ended July 3, 2021 were 9.9% and 42.3%, respectively. For the six months ended July 3, 2021, the tax expense was impacted by tax windfalls from stock compensation. For the six months ended July 3, 2021, the difference between the U.S. federal statutory tax rate and the Company’s consolidated effective tax rate was primarily due to state income tax expense and tax expense from income earned in foreign jurisdictions, partially offset by a tax benefit related to FDII. Non-Income Tax Matters The Internal Revenue Service notified the Company of certain penalties assessed related to the annual disclosure and reporting requirements of the Affordable Care Act. The Company is in the process of appealing this determination and does not believe it has any liability with respect to this matter. |
Legal |
6 Months Ended |
|---|---|
Jul. 02, 2022 | |
| Commitments And Contingencies Disclosure [Abstract] | |
| Legal |
10.Legal Due to the nature of the Company’s activities, it is, at times, subject to pending and threatened legal actions that arise out of the ordinary course of business. In the opinion of management, the disposition of any such matters is not expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, financial condition or cash flows. However, the results of legal actions cannot be predicted with certainty. Therefore, it is possible that the Company’s results of operations, financial condition or cash flows could be materially adversely affected in any particular period by the unfavorable resolution of one or more legal actions. |
Derivative Instruments and Hedging |
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| Derivative Instruments And Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging |
As of July 2, 2022 and January 1, 2022, the Company had in effect interest rate swaps with an aggregate notional amount totaling $500,000. On June 11, 2018, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2018 swap”) with an effective date of April 2, 2020 and a termination date of March 31, 2024. The initial notional amount of this swap was $500,000. During the term of this swap, the notional amount decreased from $500,000 effective April 2, 2020 to $250,000 on March 31, 2021. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at 3.1005%. On June 7, 2019, in order to hedge a portion of its variable rate debt, the Company entered into a forward-starting interest rate swap (the “2019 swap”, and together with the 2018 swap, the “current swaps”) with an effective date of April 2, 2020 and a termination date of March 31, 2024. The notional amount of this swap is $250,000. This interest rate swap effectively fixed the variable interest rate on the notional amount of this swap at 1.901%. The current swaps qualify for hedge accounting and, therefore, changes in the fair value of the current swaps have been recorded in accumulated other comprehensive loss. As of July 2, 2022, the cumulative unrealized gain for qualifying hedges was reported as a component of accumulated other comprehensive income in the amount of $3,500 ($4,536 before taxes). As of January 1, 2022, the cumulative unrealized loss for qualifying hedges was reported as a component of accumulated other comprehensive loss in the amount of $10,843 ($14,622 before taxes). The following table presents the aggregate fair value of the Company’s derivative financial instruments by balance sheet classification and location:
The Company is hedging forecasted transactions for periods not exceeding the next two years. The Company expects approximately $356 ($476 before taxes) of net derivative gains included in accumulated other comprehensive loss at July 2, 2022, based on current market rates, will be reclassified into earnings within the next 12 months. |
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Fair Value Measurements |
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| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Measurements |
Accounting guidance on fair value measurements for certain financial assets and liabilities requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:
When measuring fair value, the Company is required to maximize the use of observable inputs and minimize the use of unobservable inputs. Fair Value of Financial Instruments The Company’s significant financial instruments include long-term debt and interest rate swap agreements as of July 2, 2022 and January 1, 2022. Since there were no outstanding borrowings under the Revolving Credit Facility as of July 2, 2022 and January 1, 2022, the fair value approximated a carrying value of $0 at both July 2, 2022 and January 1, 2022. The fair value of the Company’s Credit Facilities is determined by utilizing average bid prices on or near the end of each fiscal quarter (Level 2 input). As of July 2, 2022 and January 1, 2022, the fair value of the Company’s long-term debt was approximately $1,058,883 and $1,389,306, respectively, as compared to the carrying value (net of deferred financing costs and debt discount) of $1,420,194 and $1,418,104, respectively. Derivative Financial Instruments The fair values for the Company’s derivative financial instruments are determined using observable current market information such as the prevailing LIBOR interest rate and LIBOR yield curve rates and include consideration of counterparty credit risk. See Note 11 for disclosures related to derivative financial instruments. The following table presents the aggregate fair value of the Company’s derivative financial instruments:
The Company did not have any transfers into or out of Levels 1 and 2 and did not maintain any assets or liabilities classified as Level 3 during the six months ended July 2, 2022 and the fiscal year ended January 1, 2022. |
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Accumulated Other Comprehensive Loss |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated Other Comprehensive Loss |
Amounts reclassified out of accumulated other comprehensive loss were as follows: Changes in Accumulated Other Comprehensive Loss by Component (1)
Reclassifications out of Accumulated Other Comprehensive Loss (1)
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Segment Data |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Segment Data |
The Company has four reportable segments based on an integrated geographical structure as follows: North America, Continental Europe (CE), United Kingdom and Other. Other consists of Australia, New Zealand and emerging markets operations and franchise revenues and related costs, all of which have been grouped together as if they were a single reportable segment because they do not meet any of the quantitative thresholds and are immaterial for separate disclosure. To be consistent with the information that is presented to the chief operating decision maker, the Company does not include intercompany activity in the segment results. Information about the Company’s reportable segments is as follows:
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Related Party |
6 Months Ended | ||
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Jul. 02, 2022 | |||
| Related Party Transactions [Abstract] | |||
| Related Party |
As previously disclosed, on October 18, 2015, the Company entered into the Strategic Collaboration Agreement with Oprah Winfrey, under which she would consult with the Company and participate in developing, planning, executing and enhancing the WW program and related initiatives, and provide it with services in her discretion to promote the Company and its programs, products and services for an initial term of five years (the “Initial Term”). As previously disclosed, on December 15, 2019, the Company entered into an amendment of the Strategic Collaboration Agreement with Ms. Winfrey, pursuant to which, among other things, the Initial Term of the Strategic Collaboration Agreement was extended until April 17, 2023 (with no additional successive renewal terms) after which a second term will commence and continue through the earlier of the date of the Company’s 2025 annual meeting of shareholders or May 31, 2025. Ms. Winfrey will continue to provide the above-described services during the remainder of the Initial Term and, during the second term, will provide certain consulting and other services to the Company. In addition to the Strategic Collaboration Agreement, Ms. Winfrey and her related entities provided services to the Company totaling $144 and $576 for the three and six months ended July 2, 2022, respectively, and $192 and $666 for the three and six months ended July 3, 2021, respectively, which services included advertising, production and related fees. The Company’s accounts payable to parties related to Ms. Winfrey at July 2, 2022 and January 1, 2022 was $50 and $120, respectively. During the six months ended July 3, 2021, as permitted by the transfer provisions set forth in the previously disclosed Share Purchase Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, as amended, and the previously disclosed Winfrey Option Agreement, dated October 18, 2015, between the Company and Ms. Winfrey, Ms. Winfrey sold 1,542 of the shares she purchased under such purchase agreement and exercised a portion of her stock options granted in fiscal 2015 resulting in the sale of 581 shares issuable under such options, respectively. |
Restructuring |
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| Restructuring And Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring |
16.Restructuring 2022 Plan As previously disclosed, in the second quarter of fiscal 2022, the Company committed to a restructuring plan consisting of (i) an organizational realignment to simplify the Company’s corporate structure and reduce associated costs (the “Organizational Realignment”) and (ii) a continued rationalization of its real estate portfolio resulting in the termination of certain of the Company’s operating leases (together with the Organizational Realignment, the “2022 Plan”). In connection with the 2022 Plan, the Company previously expected to record restructuring charges ranging between $18,000 to $22,000 in the aggregate in fiscal 2022. The Company revised its estimate and currently expects to record restructuring expenses of approximately $27,000 in fiscal 2022 related to this plan. For both the three and six months ended July 2, 2022, the Company recorded restructuring expenses totaling $19,117 ($14,313 after tax). The Organizational Realignment has resulted and will result in the elimination of certain positions and termination of employment for certain employees worldwide. In connection with its Organizational Realignment, the Company previously expected to record charges of approximately $12,000 to $16,000 in the aggregate with respect to employee termination benefit costs (consisting primarily of general and administrative expenses), the majority of which were recorded in the second quarter of fiscal 2022. The Company revised its estimate and currently expects to record restructuring expenses with respect to employee termination benefit costs of approximately $20,000 in fiscal 2022. In connection with the termination of certain of its operating leases, the Company continues to expect to record charges of approximately $6,000 in the aggregate consisting of lease termination and other related costs in fiscal 2022. Substantially all of these costs arising from the 2022 Plan are expected to result in cash expenditures related to separation payments, other employee termination expenses and lease termination payments. For the three and six months ended July 2, 2022, the components of the Company’s restructuring expenses were as follows:
For the three and six months ended July 2, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments. For the six months ended July 2, 2022, the Company made payments of $467 towards the liability for the lease termination costs. For the six months ended July 2, 2022, the Company made payments of $3,387 towards the liability for the employee termination benefit costs. The Company expects the remaining lease termination liability of $2,326 and the remaining employee termination benefit liability of $11,520 to be paid in full by the end of fiscal 2023. 2021 Plan As previously disclosed, in the first quarter of fiscal 2021, as the Company continued to evaluate its cost structure, anticipate consumer demand and focus on costs, the Company committed to a plan which has resulted in the termination of operating leases and elimination of certain positions worldwide. For the fiscal year ended January 1, 2022, the Company recorded restructuring expenses totaling $21,534 ($16,109 after tax). For the fiscal year ended January 1, 2022, the components of the Company’s restructuring expenses were as follows:
For the fiscal year ended January 1, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments. For the fiscal year ended January 1, 2022, the Company made payments of $7,640 towards the liability for the lease termination costs and decreased provision estimates by $3. For the fiscal year ended January 1, 2022, the Company made payments of $4,802 towards the liability for the employee termination benefit costs. For the six months ended July 2, 2022, the Company made payments of $482 towards the liability for the lease termination costs, decreased provision estimates by $683 and incurred additional lease termination and other related costs of $121. For the six months ended July 2, 2022, the Company made payments of $2,815 towards the liability for the employee termination benefit costs, increased provision estimates by $113 and incurred additional employee termination benefit costs of $148. The Company expects the remaining lease termination liability of $295 and the remaining employee termination benefit liability of $1,490 to be paid in full in fiscal 2023. 2020 Plan As previously disclosed, in the second quarter of fiscal 2020, in connection with its cost-savings initiative, and its continued response to the COVID-19 pandemic and the related shift in market conditions, the Company committed to a plan of reduction in force which has resulted in the elimination of certain positions and termination of employment for certain employees worldwide. To adjust to anticipated consumer demand, the Company evolved its workshop strategy and expanded its restructuring plan to include lease termination and other related costs. For the fiscal year ended January 2, 2021, the Company recorded restructuring expenses totaling $33,092 ($24,756 after tax). For the fiscal year ended January 2, 2021, the components of the Company’s restructuring expenses were as follows:
For the fiscal year ended January 2, 2021, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
All expenses were recorded to general corporate expenses and, therefore, there was no impact to the segments. For the fiscal year ended January 2, 2021, the Company made payments of $645 towards the liability for the lease termination costs. For the fiscal year ended January 2, 2021, the Company made payments of $15,434 towards the liability for the employee termination benefit costs and increased provision estimates by $180. For the fiscal year ended January 1, 2022, the Company made payments of $4,649 towards the liability for the lease termination costs and decreased provision estimates by $470. For the fiscal year ended January 1, 2022, the Company made payments of $6,773 towards the liability for the employee termination benefit costs and decreased provision estimates by $1,136. For the six months ended July 2, 2022, the Company made payments of $86 towards the liability for the lease termination costs and decreased provision estimates by $116. For the six months ended July 2, 2022, the Company made payments of $1,087 towards the liability for the employee termination benefit costs. As of July 2, 2022, there was no outstanding lease termination liability. The Company expects the remaining employee termination benefit liability of $853 to be paid in full in fiscal 2022. |
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Leases (Tables) |
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| Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Lease Assets and Lease Liabilities |
At July 2, 2022 and January 1, 2022, the Company’s lease assets and lease liabilities, primarily for its studios and corporate offices, were as follows:
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| Schedule of Components of Lease Expense | For the three and six months ended July 2, 2022 and July 3, 2021, the components of the Company’s lease expense were as follows
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| Summary of Weighted Average Remaining Lease Term and Weighted Average Discount Rates |
At July 2, 2022 and January 1, 2022, the Company’s weighted average remaining lease term and weighted average discount rates were as follows:
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| Schedule of Maturity of Lease Liabilities |
At July 2, 2022, the maturity of the Company’s lease liabilities in each of the next five fiscal years and thereafter were as follows:
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| Summary of Supplemental Cash Flow Information Related to Leases |
Supplemental cash flow information related to leases for the six months ended July 2, 2022 and July 3, 2021 were as follows:
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Revenue (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue From Contract With Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Revenues Disaggregated by Revenue Source |
The following table presents the Company’s revenues disaggregated by revenue source:
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| Schedule of Revenues Disaggregated by Revenue Source and Segment |
The following tables present the Company’s revenues disaggregated by revenue source and segment:
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| Schedule of Deferred Revenues | The opening and ending balances of the Company’s deferred revenues were as follows:
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Franchise Rights Acquired, Goodwill and Other Intangible Assets (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill And Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Change in Carrying Amount of Goodwill | For the six months ended July 2, 2022, the change in the carrying amount of goodwill was due to the Republic of Ireland franchisee and Northern Ireland franchisee acquisitions as described in Note 5, the impairment of the Company's wholly-owned subsidiary Kurbo, Inc. (“Kurbo”) as discussed below and the effect of exchange rate changes as follows:
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| Schedule of Carrying Values of Finite-lived Intangible Assets |
The carrying values of finite-lived intangible assets as of July 2, 2022 and January 1, 2022 were as follows:
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| Schedule of Estimated Amortization Expense of Finite-lived Intangible Assets |
Estimated amortization expense of existing finite-lived intangible assets for the next five fiscal years and thereafter is as follows:
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Long-Term Debt (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Components of Long-Term Debt |
The components of the Company’s long-term debt were as follows:
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Per Share Data (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Computation of Basic and Diluted (Net Loss) Earnings Per Share Data |
The following table sets forth the computation of basic and diluted (net loss) earnings per share data:
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Derivative Instruments and Hedging (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 02, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments And Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Aggregate Fair Value of Derivative Financial Instruments by Balance Sheet Classification and Location |
The following table presents the aggregate fair value of the Company’s derivative financial instruments by balance sheet classification and location:
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Fair Value Measurements (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Aggregate Fair Value of Derivative Financial Instruments |
The following table presents the aggregate fair value of the Company’s derivative financial instruments:
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Accumulated Other Comprehensive Loss (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Changes in Accumulated Other Comprehensive Loss by Component |
Amounts reclassified out of accumulated other comprehensive loss were as follows: Changes in Accumulated Other Comprehensive Loss by Component (1)
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| Reclassifications out of Accumulated Other Comprehensive Loss |
Reclassifications out of Accumulated Other Comprehensive Loss (1)
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Segment Data (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Information About Reportable Segments |
Information about the Company’s reportable segments is as follows:
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Restructuring (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 02, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Restructuring And Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Components of Restructuring Expenses | For the three and six months ended July 2, 2022, the components of the Company’s restructuring expenses were as follows:
For the three and six months ended July 2, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
For the fiscal year ended January 1, 2022, the components of the Company’s restructuring expenses were as follows:
For the fiscal year ended January 1, 2022, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
For the fiscal year ended January 2, 2021, the components of the Company’s restructuring expenses were as follows:
For the fiscal year ended January 2, 2021, restructuring expenses were recorded in the Company’s consolidated statements of net income as follows:
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Basis of Presentation - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
|---|---|---|
Jul. 02, 2022 |
Jul. 02, 2022 |
|
| Income Tax Expense (Benefit) | ||
| Income Taxes [Line Items] | ||
| Amount of error being corrected | $ (2,150) | $ (2,150) |
Accounting Standards Adopted in Current Year - Additional Information (Detail) - ASU 2021-08 |
Jul. 02, 2022 |
|---|---|
| New Accounting Pronouncements Or Change In Accounting Principle [Line Items] | |
| Change in accounting principle, accounting standards update, adopted | true |
| Change in accounting principle, accounting standards update, adoption date | Jan. 02, 2022 |
| Change in accounting principle, accounting standards update, immaterial effect | true |
Leases - Schedule of Lease Assets and Lease Liabilities (Detail) - USD ($) $ in Thousands |
Jul. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|
| Assets: | ||
| Operating lease assets | $ 83,777 | $ 89,902 |
| Finance lease assets | $ 102 | $ 127 |
| Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] | Property and equipment, net | Property and equipment, net |
| Total leased assets | $ 83,879 | $ 90,029 |
| Current | ||
| Operating | 18,431 | 20,297 |
| Finance | $ 53 | $ 75 |
| Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] | Other accrued liabilities | Other accrued liabilities |
| Noncurrent | ||
| Operating | $ 73,210 | $ 78,157 |
| Finance | $ 15 | $ 29 |
| Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] | Other | Other |
| Total lease liabilities | $ 91,709 | $ 98,558 |
Leases - Schedule of Components of Lease Expense (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
|
| Operating lease cost: | ||||
| Fixed lease cost | $ 7,791 | $ 9,782 | $ 15,903 | $ 20,826 |
| Lease termination cost | 2,220 | 3,208 | 2,100 | 6,360 |
| Variable lease cost | 6 | 5 | 13 | 9 |
| Total operating lease cost | 10,017 | 12,995 | 18,016 | 27,195 |
| Finance lease cost: | ||||
| Amortization of leased assets | 26 | 37 | 61 | 80 |
| Interest on lease liabilities | 1 | 2 | 2 | 5 |
| Total finance lease cost | 27 | 39 | 63 | 85 |
| Total lease cost | $ 10,044 | $ 13,034 | $ 18,079 | $ 27,280 |
Leases - Summary of Weighted Average Remaining Lease Term and Weighted Average Discount Rates (Detail) |
Jul. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|
| Weighted Average Remaining Lease Term (years) | ||
| Operating leases | 7 years 1 month 24 days | 7 years 3 months 14 days |
| Finance leases | 1 year 2 months 8 days | 1 year 6 months 14 days |
| Weighted Average Discount Rate | ||
| Operating leases | 7.10% | 7.15% |
| Finance leases | 3.34% | 5.31% |
Leases - Additional Information (Detail) |
6 Months Ended |
|---|---|
Jul. 02, 2022 | |
| Lessee Lease Description [Line Items] | |
| Lease weighted average remaining lease term | 7 years 1 month 20 days |
| Minimum | |
| Lessee Lease Description [Line Items] | |
| Leases, remaining lease term | 0 years |
| Maximum | |
| Lessee Lease Description [Line Items] | |
| Leases, remaining lease term | 10 years |
Leases - Schedule of Maturity of Lease Liabilities (Detail) $ in Thousands |
Jul. 02, 2022
USD ($)
|
|---|---|
| Operating Leases | |
| Remainder of fiscal 2022 | $ 11,847 |
| Fiscal 2023 | 23,072 |
| Fiscal 2024 | 16,988 |
| Fiscal 2025 | 12,151 |
| Fiscal 2026 | 9,571 |
| Fiscal 2027 | 9,376 |
| Thereafter | 36,182 |
| Total lease payments | 119,187 |
| Less imputed interest | 27,546 |
| Present value of lease liabilities | 91,641 |
| Finance Leases | |
| Remainder of fiscal 2022 | 32 |
| Fiscal 2023 | 33 |
| Fiscal 2024 | 4 |
| Total lease payments | 69 |
| Less imputed interest | 1 |
| Present value of lease liabilities | 68 |
| Total | |
| Remainder of fiscal 2022 | 11,879 |
| Fiscal 2023 | 23,105 |
| Fiscal 2024 | 16,992 |
| Fiscal 2025 | 12,151 |
| Fiscal 2026 | 9,571 |
| Fiscal 2027 | 9,376 |
| Thereafter | 36,182 |
| Total lease payments | 119,256 |
| Less imputed interest | 27,547 |
| Present value of lease liabilities | $ 91,709 |
Leases - Summary of Supplemental Cash Flow Information Related to Leases (Detail) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
|
| Cash paid for amounts included in the measurement of lease liabilities | ||
| Operating cash flows from operating leases | $ 16,733 | $ 22,078 |
| Operating cash flows from finance leases | 2 | 5 |
| Financing cash flows from finance leases | 61 | 80 |
| Leased assets obtained (modified) in exchange for new (modified) operating lease liabilities | 6,909 | (1,012) |
| Leased assets obtained in exchange for new finance lease liabilities | $ 44 | $ 81 |
Revenue - Schedule of Revenues Disaggregated by Revenue Source (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
|
| Disaggregation Of Revenue [Line Items] | ||||
| Revenues, net | $ 269,454 | $ 311,379 | $ 567,214 | $ 643,175 |
| Digital Subscription Revenues | ||||
| Disaggregation Of Revenue [Line Items] | ||||
| Revenues, net | 174,219 | 205,337 | 365,701 | 411,398 |
| Workshops + Digital Fees | ||||
| Disaggregation Of Revenue [Line Items] | ||||
| Revenues, net | 66,172 | 67,534 | 131,675 | 141,293 |
| Subscription Revenues, net | ||||
| Disaggregation Of Revenue [Line Items] | ||||
| Revenues, net | 240,391 | 272,871 | 497,376 | 552,691 |
| Product sales and other, net | ||||
| Disaggregation Of Revenue [Line Items] | ||||
| Revenues, net | $ 29,063 | $ 38,508 | $ 69,838 | $ 90,484 |
Revenue - Schedule of Deferred Revenues (Detail) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
|
| Deferred Revenue - Short Term | ||
| Contract With Customer Asset And Liability [Line Items] | ||
| Deferred Revenue, Beginning balance | $ 45,855 | $ 50,475 |
| Net increase (decrease) during the period | 1,782 | 960 |
| Deferred Revenue, Ending balance | 47,637 | 51,435 |
| Deferred Revenue - Long Term | ||
| Contract With Customer Asset And Liability [Line Items] | ||
| Deferred Revenue, Beginning balance | 28 | 44 |
| Net increase (decrease) during the period | 28 | (28) |
| Deferred Revenue, Ending balance | $ 56 | $ 16 |
Revenue - Additional Information (Detail) - USD ($) $ in Thousands |
6 Months Ended | |
|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
|
| Revenues [Abstract] | ||
| Deferred revenue recognized | $ 43,372 | $ 48,227 |
Franchise Rights Acquired, Goodwill and Other Intangible Assets - Change in Carrying Amount of Goodwill (Detail) - USD ($) |
6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|
May 08, 2022 |
May 09, 2021 |
Jul. 02, 2022 |
Jan. 01, 2022 |
|
| Goodwill [Line Items] | ||||
| Beginning balance | $ 157,374,000 | $ 155,617,000 | ||
| Goodwill acquired during the period | 5,936,000 | 2,153,000 | ||
| Goodwill impairment | $ 0 | $ 0 | (1,101,000) | |
| Effect of exchange rate changes | (2,277,000) | (396,000) | ||
| Ending balance | 159,932,000 | 157,374,000 | ||
| North America | ||||
| Goodwill [Line Items] | ||||
| Beginning balance | 147,530,000 | 145,071,000 | ||
| Goodwill acquired during the period | 2,153,000 | |||
| Goodwill impairment | (1,101,000) | |||
| Effect of exchange rate changes | (805,000) | 306,000 | ||
| Ending balance | 145,624,000 | 147,530,000 | ||
| Continental Europe | ||||
| Goodwill [Line Items] | ||||
| Beginning balance | 7,186,000 | 7,792,000 | ||
| Effect of exchange rate changes | (732,000) | (606,000) | ||
| Ending balance | 6,454,000 | 7,186,000 | ||
| United Kingdom | ||||
| Goodwill [Line Items] | ||||
| Beginning balance | 1,254,000 | 1,268,000 | ||
| Goodwill acquired during the period | 5,936,000 | |||
| Effect of exchange rate changes | (654,000) | (14,000) | ||
| Ending balance | 6,536,000 | 1,254,000 | ||
| Other | ||||
| Goodwill [Line Items] | ||||
| Beginning balance | 1,404,000 | 1,486,000 | ||
| Effect of exchange rate changes | (86,000) | (82,000) | ||
| Ending balance | $ 1,318,000 | $ 1,404,000 |
Franchise Rights Acquired, Goodwill and Other Intangible Assets - Schedule of Estimated Amortization Expense of Finite-lived Intangible Assets (Detail) $ in Thousands |
Jul. 02, 2022
USD ($)
|
|---|---|
| Goodwill And Intangible Assets Disclosure [Abstract] | |
| Remainder of fiscal 2022 | $ 15,746 |
| Fiscal 2023 | 24,052 |
| Fiscal 2024 | 13,611 |
| Fiscal 2025 | 3,112 |
| Fiscal 2026 | 794 |
| Fiscal 2027 | 719 |
| Thereafter | $ 7,171 |
Long-Term Debt - Components of Long-Term Debt (Detail) - USD ($) $ in Thousands |
Jul. 02, 2022 |
Jan. 01, 2022 |
Jul. 03, 2021 |
||
|---|---|---|---|---|---|
| Debt Instrument | |||||
| Total Debt | $ 1,445,000 | $ 1,445,000 | |||
| Unamortized Deferred Financing Costs | 11,593 | 12,534 | |||
| Unamortized Debt discount | 13,213 | 14,362 | |||
| Total long-term debt | $ 1,420,194 | $ 1,418,104 | |||
| Effective Interest Rate | [1] | 4.63% | 5.15% | ||
| Term Loan Facility due April 13, 2028 | |||||
| Debt Instrument | |||||
| Total Debt | $ 945,000 | $ 945,000 | |||
| Unamortized Deferred Financing Costs | 6,375 | 6,930 | |||
| Unamortized Debt discount | $ 13,213 | $ 14,362 | $ 5,000 | ||
| Effective Interest Rate | [1] | 4.62% | 4.48% | ||
| Senior Secured Notes due April 15, 2029 | |||||
| Debt Instrument | |||||
| Total Debt | $ 500,000 | $ 500,000 | |||
| Unamortized Deferred Financing Costs | $ 5,218 | $ 5,604 | |||
| Effective Interest Rate | [1] | 4.65% | 4.70% | ||
| Revolving Credit Facility due April 13, 2026 | |||||
| Debt Instrument | |||||
| Total Debt | $ 0 | $ 0 | |||
| Effective Interest Rate | [1] | 0.00% | 2.61% | ||
| |||||
Per Share Data - Computation of Basic and Diluted (Net Loss) Earning Per Share Data (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
|
| Numerator: | ||||
| Net (loss) income | $ (4,623) | $ 8,860 | $ (12,866) | $ (9,367) |
| Denominator: | ||||
| Weighted average shares of common stock outstanding | 70,305 | 69,588 | 70,195 | 69,336 |
| Effect of dilutive common stock equivalents | 1,572 | |||
| Weighted average diluted common shares outstanding | 70,305 | 71,160 | 70,195 | 69,336 |
| (Net loss) earnings per share | ||||
| Basic | $ (0.07) | $ 0.13 | $ (0.18) | $ (0.14) |
| Diluted | $ (0.07) | $ 0.12 | $ (0.18) | $ (0.14) |
Per Share Data - Additional Information (Detail) - shares shares in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
|
| Earnings Per Share [Abstract] | ||||
| Anti-dilutive common stock equivalents excluded from the calculation of diluted EPS | 8,732 | 4,724 | 7,848 | 6,426 |
Taxes - Additional Information (Detail) |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
|
| Income Tax Disclosure [Abstract] | ||||
| Effective income tax rate | 38.40% | 9.90% | 26.70% | 42.30% |
Derivative Instruments and Hedging - Additional Information (Detail) - USD ($) |
6 Months Ended | |||||
|---|---|---|---|---|---|---|
Mar. 31, 2021 |
Apr. 02, 2020 |
Jun. 07, 2019 |
Jun. 11, 2018 |
Jul. 02, 2022 |
Jan. 01, 2022 |
|
| Derivative | ||||||
| Maximum length of time hedging forecasted | 2 years | |||||
| Derivative loss included in accumulated other comprehensive income (loss) that are expected to be reclassified into earnings within the next 12 months, net of tax | $ 356,000 | |||||
| Derivative loss included in accumulated other comprehensive income (loss) that are expected to be reclassified into earnings within the next 12 months, before tax | 476,000 | |||||
| Interest Rate Swap | ||||||
| Derivative | ||||||
| Cumulative gain (loss) for qualifying hedges reported as a component of accumulated other comprehensive income (loss) net of tax | 3,500,000 | $ (10,843,000) | ||||
| Cumulative gain (loss) for qualifying hedges reported as a component of accumulated other comprehensive income (loss) before tax | 4,536,000 | (14,622,000) | ||||
| Interest Rate Swap | 2018 Swap | ||||||
| Derivative | ||||||
| Forward-starting interest rate swap, effective date | Apr. 02, 2020 | |||||
| Forward starting interest rate swap, termination date | Mar. 31, 2024 | |||||
| Derivative interest rate swap percentage | 3.1005% | |||||
| Interest Rate Swap | 2019 Swap | ||||||
| Derivative | ||||||
| Forward-starting interest rate swap, effective date | Apr. 02, 2020 | |||||
| Forward starting interest rate swap, termination date | Mar. 31, 2024 | |||||
| Derivative interest rate swap percentage | 1.901% | |||||
| Interest Rate Swap | Cash Flow Hedging | ||||||
| Derivative | ||||||
| Notional amount | $ 500,000,000 | $ 500,000,000 | ||||
| Interest Rate Swap | Cash Flow Hedging | 2018 Swap | ||||||
| Derivative | ||||||
| Notional amount | $ 250,000,000 | $ 500,000,000 | $ 500,000,000 | |||
| Forward-starting interest rate swap, effective date | Mar. 31, 2021 | Apr. 02, 2020 | ||||
| Interest Rate Swap | Cash Flow Hedging | 2019 Swap | ||||||
| Derivative | ||||||
| Notional amount | $ 250,000,000 |
Derivative Instruments and Hedging - Summary of Aggregate Fair Value of Derivative Financial Instruments by Balance Sheet Classification and Location (Detail) - USD ($) $ in Thousands |
Jul. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|
| Derivative | ||
| Derivative assets | $ 4,808 | |
| Derivative liabilities, current | 307 | $ 14,670 |
| Derivative liabilities | 307 | 14,670 |
| Interest Rate Swap - 2019 Swap | Prepaid Expenses and Other Current Assets | ||
| Derivative | ||
| Derivative assets, current | 2,837 | |
| Interest Rate Swap - 2019 Swap | Other Noncurrent Assets | ||
| Derivative | ||
| Derivative assets, noncurrent | 1,971 | |
| Interest Rate Swap - 2018 Swap | Derivative Payable | ||
| Derivative | ||
| Derivative liabilities, current | $ 307 | |
| Interest Rate Swap - Current Swaps | Derivative Payable | ||
| Derivative | ||
| Derivative liabilities, current | $ 14,670 |
Fair Value Measurements - Additional Information (Detail) - USD ($) |
Jul. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|
| Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items] | ||
| Debt outstanding amount | $ 1,420,194,000 | $ 1,418,104,000 |
| Fair value of long-term debt | 1,058,883,000 | 1,389,306,000 |
| Fair value assets, transfer between level 1 to level 2 | 0 | 0 |
| Fair value liabilities, transfer between level 1 to level 2 | 0 | 0 |
| Fair value assets, transfer between level 2 to level 1 | 0 | 0 |
| Fair value liabilities, transfer between level 2 to level 1 | 0 | 0 |
| Revolving Credit Facility | ||
| Fair Value Balance Sheet Grouping Financial Statement Captions [Line Items] | ||
| Carrying value of long-term debt | 0 | 0 |
| Debt outstanding amount | $ 0 | $ 0 |
Fair Value Measurements - Aggregate Fair Value of Derivative Financial Instruments (Detail) - Fair Value, Measurements, Recurring - Interest Rate Swap - USD ($) $ in Thousands |
Jul. 02, 2022 |
Jan. 01, 2022 |
|---|---|---|
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis | ||
| Interest rate swap current asset | $ 2,837 | |
| Interest rate swap noncurrent asset | 1,971 | |
| Interest rate swap current liability | 307 | $ 14,670 |
| Fair Value Measurements Using Significant Other Observable Inputs (Level 2) | ||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis | ||
| Interest rate swap current asset | 2,837 | |
| Interest rate swap noncurrent asset | 1,971 | |
| Interest rate swap current liability | $ 307 | $ 14,670 |
Accumulated Other Comprehensive Loss - Changes in Accumulated Other Comprehensive Loss by Component (Detail) - USD ($) $ in Thousands |
6 Months Ended | |||||
|---|---|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
|||||
| Accumulated Other Comprehensive Income Loss [Line Items] | ||||||
| Other comprehensive income (loss) before reclassifications, net of tax | [1] | $ 4,821 | $ 1,958 | |||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | [1],[2] | 3,181 | 4,373 | |||
| Net current period other comprehensive income (loss) | [1] | 8,002 | 6,331 | |||
| (Loss) Gain on Qualifying Hedges | ||||||
| Accumulated Other Comprehensive Income Loss [Line Items] | ||||||
| Beginning balance | [1] | (10,843) | (20,979) | |||
| Other comprehensive income (loss) before reclassifications, net of tax | [1] | 11,162 | 659 | |||
| Amounts reclassified from accumulated other comprehensive loss, net of tax | [1],[2] | 3,181 | 4,373 | |||
| Net current period other comprehensive income (loss) | [1] | 14,343 | 5,032 | |||
| Ending balance | [1] | 3,500 | (15,947) | |||
| Loss on Foreign Currency Translation | ||||||
| Accumulated Other Comprehensive Income Loss [Line Items] | ||||||
| Beginning balance | [1] | (7,761) | (4,170) | |||
| Other comprehensive income (loss) before reclassifications, net of tax | [1] | (6,341) | 1,299 | |||
| Net current period other comprehensive income (loss) | [1] | (6,341) | 1,299 | |||
| Ending balance | [1] | (14,102) | (2,871) | |||
| Accumulated Other Comprehensive Loss | ||||||
| Accumulated Other Comprehensive Income Loss [Line Items] | ||||||
| Beginning balance | [1] | (18,604) | (25,149) | |||
| Ending balance | [1] | $ (10,602) | $ (18,818) | |||
| ||||||
Accumulated Other Comprehensive Loss - Reclassifications out of Accumulated Other Comprehensive Loss (Detail) - Reclassification out of Accumulated Other Comprehensive Income - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
|||
| Interest Expense | Interest Rate Contract | ||||||
| Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items] | ||||||
| Loss on Qualifying Hedges | [1] | $ (2,036) | $ (2,213) | $ (4,249) | $ (5,846) | |
| (Loss) Income Before Income Taxes | ||||||
| Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items] | ||||||
| Loss on Qualifying Hedges | [1] | (2,036) | (2,213) | (4,249) | (5,846) | |
| (Benefit from) Provision for Income Taxes | ||||||
| Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items] | ||||||
| Loss on Qualifying Hedges | [1] | 512 | 557 | 1,068 | 1,473 | |
| Net (Loss) Income | ||||||
| Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items] | ||||||
| Loss on Qualifying Hedges | [1] | $ (1,524) | $ (1,656) | $ (3,181) | $ (4,373) | |
| ||||||
Segment Data - Additional Information (Detail) |
6 Months Ended |
|---|---|
|
Jul. 02, 2022
Segment
| |
| Segment Reporting [Abstract] | |
| Number of reportable segments | 4 |
Segment Data - Information About Reportable Segments (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
|
| Segment Reporting Information [Line Items] | ||||
| Revenues, net | $ 269,454 | $ 311,379 | $ 567,214 | $ 643,175 |
| Operating income (loss) | 13,366 | 59,673 | 22,335 | 62,502 |
| Interest expense | 19,255 | 20,293 | 37,926 | 49,416 |
| Other expense, net | 1,613 | 381 | 1,956 | 143 |
| Early extinguishment of debt | 29,169 | 29,169 | ||
| (Benefit from) provision for income taxes | (2,879) | 970 | (4,681) | (6,859) |
| Net (loss) income | (4,623) | 8,860 | (12,866) | (9,367) |
| Depreciation and amortization | 13,288 | 14,214 | 25,301 | 29,626 |
| Operating Segments | ||||
| Segment Reporting Information [Line Items] | ||||
| Operating income (loss) | 56,527 | 98,869 | 96,204 | 147,152 |
| Depreciation and amortization | 8,826 | 10,526 | 17,784 | 21,644 |
| General corporate expenses | ||||
| Segment Reporting Information [Line Items] | ||||
| General corporate expenses | 43,161 | 39,196 | 73,869 | 84,650 |
| Depreciation and amortization | 4,462 | 3,688 | 7,517 | 7,982 |
| North America | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues, net | 188,014 | 207,629 | 392,327 | 428,945 |
| North America | Operating Segments | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues, net | 188,014 | 207,629 | 392,327 | 428,945 |
| Operating income (loss) | 26,514 | 61,395 | 48,028 | 88,977 |
| Depreciation and amortization | 8,345 | 9,804 | 16,798 | 20,118 |
| Continental Europe | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues, net | 61,743 | 77,936 | 132,644 | 159,831 |
| Continental Europe | Operating Segments | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues, net | 61,743 | 77,936 | 132,644 | 159,831 |
| Operating income (loss) | 28,021 | 33,451 | 48,464 | 53,505 |
| Depreciation and amortization | 163 | 397 | 425 | 831 |
| United Kingdom | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues, net | 12,757 | 17,002 | 27,196 | 36,070 |
| United Kingdom | Operating Segments | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues, net | 12,757 | 17,002 | 27,196 | 36,070 |
| Operating income (loss) | 1,102 | 2,040 | (1,099) | 2,583 |
| Depreciation and amortization | 217 | 221 | 365 | 478 |
| Other | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues, net | 6,940 | 8,812 | 15,047 | 18,329 |
| Other | Operating Segments | ||||
| Segment Reporting Information [Line Items] | ||||
| Revenues, net | 6,940 | 8,812 | 15,047 | 18,329 |
| Operating income (loss) | 890 | 1,983 | 811 | 2,087 |
| Depreciation and amortization | $ 101 | $ 104 | $ 196 | $ 217 |
Related Party - Additional Information (Detail) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||||
|---|---|---|---|---|---|---|
Oct. 18, 2015 |
Jul. 02, 2022 |
Jul. 03, 2021 |
Jul. 02, 2022 |
Jul. 03, 2021 |
Jan. 01, 2022 |
|
| Related Party Transaction [Line Items] | ||||||
| Initial agreement term | 5 years | |||||
| Ms. Winfrey and her related entities | ||||||
| Related Party Transaction [Line Items] | ||||||
| Related Party Transaction, service provided by related party | $ 144 | $ 192 | $ 576 | $ 666 | ||
| Ms. Winfrey | ||||||
| Related Party Transaction [Line Items] | ||||||
| Accounts payable to related parties | $ 50 | $ 50 | $ 120 | |||
| Number of shares purchased from related party | 1,542 | |||||
| Stock options exercised | 581 | |||||
Restructuring - Additional Information (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 02, 2022 |
Jan. 01, 2022 |
Jan. 02, 2021 |
Dec. 31, 2022 |
|
| 2022 Plan | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Restructuring expenses | $ 19,117 | $ 19,117 | |||
| Restructuring expenses after tax | 14,313 | 14,313 | |||
| 2022 Plan | Scenario Forecast | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Revised estimated cost | $ 27,000 | ||||
| 2022 Plan | Lease Termination Costs | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Restructuring expenses | 3,666 | 3,666 | |||
| Payments | 467 | ||||
| Restructuring liability | 2,326 | 2,326 | |||
| 2022 Plan | Lease Termination Costs | Scenario Forecast | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Estimated cost | 6,000 | ||||
| 2022 Plan | Employee Severance | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Restructuring expenses | 14,907 | 14,907 | |||
| Payments | 3,387 | ||||
| Restructuring liability | 11,520 | 11,520 | |||
| 2022 Plan | Employee Severance | Scenario Forecast | General and Administrative Expenses | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Revised estimated cost | 20,000 | ||||
| 2022 Plan | Minimum | Scenario Forecast | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Estimated cost | 18,000 | ||||
| 2022 Plan | Minimum | Employee Severance | Scenario Forecast | General and Administrative Expenses | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Estimated cost | 12,000 | ||||
| 2022 Plan | Maximum | Scenario Forecast | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Estimated cost | 22,000 | ||||
| 2022 Plan | Maximum | Employee Severance | Scenario Forecast | General and Administrative Expenses | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Estimated cost | $ 16,000 | ||||
| 2021 Plan | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Restructuring expenses | $ 21,534 | ||||
| Restructuring expenses after tax | 16,109 | ||||
| 2021 Plan | Lease Termination Costs | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Restructuring expenses | 121 | 12,688 | |||
| Payments | 482 | 7,640 | |||
| Provision estimates | (683) | (3) | |||
| Restructuring liability | 295 | 295 | |||
| 2021 Plan | Employee Severance | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Restructuring expenses | 148 | 8,846 | |||
| Payments | 2,815 | 4,802 | |||
| Provision estimates | 113 | ||||
| Restructuring liability | 1,490 | 1,490 | |||
| 2020 Plan | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Restructuring expenses | $ 33,092 | ||||
| Restructuring expenses after tax | 24,756 | ||||
| 2020 Plan | Lease Termination Costs | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Restructuring expenses | 7,989 | ||||
| Payments | 86 | 4,649 | 645 | ||
| Provision estimates | (116) | (470) | |||
| Restructuring liability | 0 | 0 | |||
| 2020 Plan | Employee Severance | |||||
| Restructuring Cost And Reserve [Line Items] | |||||
| Restructuring expenses | 25,103 | ||||
| Payments | 1,087 | 6,773 | 15,434 | ||
| Provision estimates | $ (1,136) | $ 180 | |||
| Restructuring liability | $ 853 | $ 853 | |||
Restructuring - Components of Restructuring Expenses (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | |
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 02, 2022 |
Jan. 01, 2022 |
Jan. 02, 2021 |
|
| 2022 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 19,117 | $ 19,117 | ||
| 2021 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 21,534 | |||
| 2020 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 33,092 | |||
| Lease Termination Costs | 2022 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | 3,666 | 3,666 | ||
| Lease Termination Costs | 2021 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | 121 | 12,688 | ||
| Lease Termination Costs | 2020 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | 7,989 | |||
| Employee Severance | 2022 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | 14,907 | 14,907 | ||
| Employee Severance | 2021 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | 148 | $ 8,846 | ||
| Employee Severance | 2020 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 25,103 | |||
| Other Costs | 2022 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 544 | $ 544 | ||
Restructuring - Schedule of Restructuring Expenses (Detail) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | 12 Months Ended | |
|---|---|---|---|---|
Jul. 02, 2022 |
Jul. 02, 2022 |
Jan. 01, 2022 |
Jan. 02, 2021 |
|
| 2022 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 19,117 | $ 19,117 | ||
| 2021 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 21,534 | |||
| 2020 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 33,092 | |||
| Cost of Revenues | 2022 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | 4,498 | 4,498 | ||
| Cost of Revenues | 2021 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | 16,727 | |||
| Cost of Revenues | 2020 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | 23,300 | |||
| Selling, General and Administrative Expenses | 2022 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 14,619 | $ 14,619 | ||
| Selling, General and Administrative Expenses | 2021 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 4,807 | |||
| Selling, General and Administrative Expenses | 2020 Plan | ||||
| Restructuring Cost And Reserve [Line Items] | ||||
| Total restructuring expenses | $ 9,792 | |||